Capital One Breaks Out of Channel - Time to Jump in?

Boosted by a solid earnings report on Thursday of last week, shares of Capital One Financial

jumped to a four-year high of $60.89 in Friday's trading session, closing at $60.75. As the nine-month daily chart below shows (click to enlarge), the stock has been trading in a channel between $55 and $60 since early August. In that time, shares tested (and held) the $55 support level on three occasions, yet failed to break above $60 twice. The third time proved to be the charm, however, as the stock rose six percent on Friday, managing to close above $60 for the first time in five years on heavy volume. Friday's action, without question, has shorts extremely nervous and any further move higher could cause many to abandon their positions, elevating share prices in the process. Look for volume in the November 12 call contracts (60 strike) as an early indication, as the $60 level is now a very important reference point. It is not all good news, however, as the MACD (bottom) is showing a bearish divergence relating to the stock price. As you can see, while the stock has hit a one year high, the technical indicator is not making higher highs along with it and is actually in a downtrend dating back to mid-September. Such an occurrence usually indicates that a stock is getting ahead of itself and may see a significant sell off in the near future. In order to alleviate this concern, the MACD would need to break through its resistance and begin performing on par with the stock price. Should this breakdown happen, look for a move down toward the $55 level. Beyond that, the next support level comes into play around $52.50. Time will tell.