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Another Stock Split

12/16/13 04:21:44 PM
by Koos van der Merwe

Once again my ears perk up with the announcement of a 10 for 1 stock split by Mastercard.

Security:   MA
Position:   Hold

MasterCard (MA) plans a 10-for-1 stock split. The company announced several measures to bring its stock price down to the $80 per share range and reward shareholders. In addition to the stock split, which is set for January 9, 2014 it will begin a $3.5-billion share buyback program and increase its third quarter dividend by 83% to $1.10 per share. That would be 11 cents a share after the stock split. The dividend increase is to tempt investors to remain positive after the share is split.

Stock splits are designed to widen the potential pool of investors by making it less expensive to buy small numbers of shares. Does that mean you should buy Mastercard at present levels?

Figure 1. Weekly chart of Mastercard.
Graphic provided by: AdvancedGET.
The chart in Figure 1 is a weekly chart showing how the share price rose from a low of $114.31 in November 2008 to its present high of $784.12 in a wave 5 of a WAVE III. With the RSI at overbought levels, this is suggesting that a WAVE IV correction could be on the cards in the future, but whether this will be before or after the share split is the question.

Figure 2. Daily Omnitrader chart of Mastercard.
Graphic provided by: Omnitrader.
The chart in Figure 2 is an Omnitrader chart showing a buy signal given on December 6, 2013 as shown in the Vote line. The buy signal was given based on the strategies shown in green below the Vote line. Note that the RSI and TDIJak indicators are trending upward after giving a buy signal. Note also the gap that formed with the announcement of a share split. This suggests that the share price could fall to fill the gap.

Figure 3. Daily chart of MasterCard.
Graphic provided by: AdvancedGET.
The chart in Figure 3 is a daily chart with a JM Internal Band indicator. A JM Internal Band is a 15-period simple moving average offset by 2% positive and 2% negative. Note the buy signal given on October 11, 2013 by the JM Internal Band indicator as the price broke above the upper band. The price has been updated to include December 12, 2013. Note how the price has fallen to fill the gap. Also note the RSI indicator which is at overbought levels, suggesting a sell is on the cards. The RSI buy signals were given as the RSI broke below and then above the 50 horizontal level in past performance.

I would not be a buyer of MC at present levels, but would wait for more pullback to fill the gap, and only with the RSI giving a new buy signal. However, I must admit that the stock split will see an increase in buyers; the dividend increase and the share buy back makes the share a tempting buy. It is one to watch.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

Address: 3256 West 24th Ave
Vancouver, BC
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