3 Must Know Facts about the Most Economically Sensitive Company in the World

Many investors look at economic indicators to gauge what’s ahead for stocks, but price is always the final arbiter. Here is one stock that’s more heavily intertwined in the global economy that any other, it’s also the biggest Dow component.

What’s most likely the most economically sensitive company in the world? Here are three clues:

  • You probably carry it in your wallet
  • In 2008 it become the largest IPO in U.S. history (surpassed by Alibaba in 2014)
  • It is the most influential component of the Dow Jones Industrial Average

VISA (NYSE: V)

According to a 2008 Nilson report, Visa held a 38.3% market share of the credit card market place and 60.7% of the debit card market place in the U.S.

In 2009, Visa processed 62 billion transactions worth $4.4 trillion globally.

When consumers spend money, Visa makes money. When Visa makes money, the economy must be doing well. But, when Visa shares head lower, it may foreshadow trouble for the economy and the stock market.

Here are three must know facts about Visa:

  1. The Visa chart is showing a breakdown below a 3-year support line. Additional support is around 206. Resistance is around 219. Investors should know that Visa doesn’t issue cards or extend credit. Visa only provides the Visa-branded products and charges for processing transaction. Visa is not on the hook for delinquent or unpaid bills, but a decreasing volume of transactions (shy consumer) does affect its bottom line.
  2. There’ve been many calls for a market top, bubble burst and outright market crash. No doubt this QE rally is quite aged, but the final leg higher seems still ahead.

    The older bull markets get, the more selective investors become. In their search for value, investors tend to flock towards large cap stocks. Which are perceived to be safer in a late stage bull market. Visa should (once this correction is finished) benefit from this large cap preference.

  3. Unlike most other major market indexes, the Dow Jones is price-weighted. With a price tag of $210, Visa is the biggest component of the Dow Jones (NYSEArca: DIA).

Visa’s price affects the Dow Jones more than any other stock.

Visa is not just an economically sensitive company, its stock is also a big player on Wall Street.

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.

Follow Simon on Twitter @ iSPYETF or sign up for the FREE iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.

Biggest Dow Jones Component Hits Speed bump

Every index has at least one VIP component. Apple is the VIP for the Nasdaq-100 and S&P 500. IBM and VISA are the VIPs for the Dow Jones Industrial Average. When a VIP is ailing, the index has a hard time firing on all cylinders. That’s the case for the Dow Jones right now.

Prior to the latest Dow Jones reshuffle IBM used to rule the roost.

Effective September 20, 2013, Nike, Goldman Sachs and Visa replaced Hewlett-Packard, Bank of America, and Alcoa.

Prior to the reshuffle IBM accounted for a whopping 10% of the Dow Jones Industrial Average (DJA: ^DJI). The Dow’s runner up VIP was Chevron with 6%.

Today IBM is only the second biggest Dow Jones component, making up ‘only’ 7.45% after VISA with a weighting of 7.93%.

Nevertheless, when one of the Dow components hits a speed bump, the Dow tends to suffer.

IBM is hitting such a speed bump right now.

As the IBM chart below shows, trade is pausing at a descending trend line and at a wide resistance zone made up of prior highs and lows.

How come the Dow Jones Industrial Average and Dow Jones Diamond ETF (NYSEArca: DIA) have pushed to new all-time highs even though IBM is trading 14% below its high?

It has to do with the strong performance of the financial sector. The financial sector is near new recovery highs and since the September reshuffle the financial sector makes up 16% compared to 11% before the component change.

Regardless of its composition, Dow Jones and Dow Jones ETF are also gnawing at an important resistance level.

The media makes us believe this all-important milestone is round number resistance at 16,000, but it isn’t.

Here’s the Dow Jones resistance level that must be watched:

Forget Dow 16,000 – Here’s the Real ‘Bubble Popper’

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report uses technical analysis, dozens of investor sentiment gauges, seasonal patterns and a healthy portion of common sense to spot low-risk, high probability trades (see track record below).

Follow Simon on Twitter @ iSPYETF or sign up for the iSPYETF Newsletter to get actionable ETF trade ideas delivered for free.