Discover Financial Services (NYSE: DFS)

Discover Financial Services, a bank holding company, provides direct banking and payment services in the United States. It operates in two segments, Direct Banking and Payment Services. The Direct Banking segment offers Discover card-branded credit cards to individuals and small businesses on the Discover Network. This segment also provides other consumer banking products and services, including private student loans, personal loans, home loans, and prepaid cards; and other consumer lending and deposit products, such as certificates of deposit, money market accounts, online savings accounts, and individual retirement account certificates of deposit. The Payment Services segment operates PULSE, an automated teller machine, debit, and electronic funds transfer network; and Diners Club, a global payments network, as well as a network partners business, which includes credit, debit, and prepaid cards issued on the Discover Network by third parties.

To review Discover’s stock, please take a look at the 1-year chart of DFS (Discover Financial Services) below with my added notations:

1-year chart of DFS (Discover Financial Services)

Over the last 8 months DFS has consistently moved higher. Since June though, the stock has formed an apparent trendline of support (blue). Always remember that any (2) points can start a trendline, but it’s the 3rd test and beyond that confirm its importance. DFS’ trendline seems to be important now that it has been tested a 3rd time back in October.

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The Tale of the Tape: DFS has created a trendline of support over the last 5 months. A long position could be entered on a pullback to that trendline, which is approaching $50, with a stop placed below that level. A short position could be entered if DFS were to break the trend line support.

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Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade. Capital preservation is always key!

Good luck!

Christian Tharp, CMT

Follow me on Twitter: @cmtstockcoach