Is it the right time to buy MasterCard (MA) yet? Let’s look at statistics for some answers.
Discussed in this article: MasterCard Cl A ( $MA )
I want to look at MasterCard ( NYSE:MA ) today. As you probably know yesterday before the open, maybe it was the night before that, I don’t know, but the stock was up big time because they announced a ten for one stock split, they jacked up their dividend by 83 percent and also announced an increase in their share buyback. So there’s a lot of good stuff going on and obviously a boatload of people bought this stock yesterday at the open; a lot of buying going on, look at the volume here. The first five minutes over 300,000 shares traded, that’s a pretty big deal. The first five minutes on the day before, a whopping 26,000 shares traded. So there were a lot of lemmings just rushing right in to buy this thing.
The stock just had been selling off and you could have been tempted to start buying this stock yesterday at the close. But let me show you a chart that I look at for these big ones, for the big, big movers. The outside Bollinger Band, the very outside one is three standard deviations, you see the light gray area, anything above that or below that is outside the norm by like 99.7 percent. In other words stocks that blowout above the third standard deviation virtually always correct.
Now, before you think that I just gave you the Holy Grail, look at this, this one blew out, or let’s just look at it the day before, I forget what happened there, but the stock gapped up above out at these third standard deviation Bollinger Bands, awesome short, it gapped up and then got slammed. So you’re saying, “Okay, I’m going to short the stock right here, I’m shorting the stock because it gapped up above the third standard deviation. Well that needed to be a one-day wonder because the stock kept moving higher.
So my point is just because a stock opens and closes above this third standard deviation don’t look at it as a sure thing, but you can look at it as almost a sure thing, because statistically stock should be pulling back, it should fallback within the Bollinger Bands. But I have to say it again, statistically, not absolutely, here that method worked. So what are we going to do? The stock is still outside the second standard deviation, it should correct more. Now, we could get the Bollinger Band moving higher to actually envelop the price, but either way you slice it this stock is ultimately going to be back inside the upper Bollinger Band.
So what do we do, do we buy the stock now? No, the stocks drifting lower, I’m looking at this as a short-term low, we’ll call it 781.00, but this is really the gap that you want to be looking at, this day. The gap, clear down to 770.00, if the stock happened to fill this gap, that’s where you want to be buying this stock. It may not get down this far, but what I am saying is, the further down the box this stock will go, to where you can buy it, gives you the most profit on the trade.
I’m speaking the obvious, the lower price you can buy the stock the more chance you’re going to have to make money. But the thing is, you want to be long a stock but sometimes your emotions get the better of you and you just say, “Well I’ve got to buy this stock.” Guess what? That’s what all these guys did here, you don’t want to be one of those guys, so wait for your turn, wait for the right time to buy, and that’s when you want to buy a stock like MasterCard ( NYSE:MA ).