Bet on Reversals and Limit Your Risks
The S&P 500 Index (SPX) remains under the 2,600 mark and locked in a tight 13-point range. The S&P 500 Index (SPX) remains under the 2,600 mark and locked in a tight 13-point range. Indicators show that the index is still extremely overbought, and momentum is weakening. It briefly touched immediate support at 2,566 before closing at 2,578.9. The SPX must sharply pull back to have a shot at a sustainable breach of 2,600.
With this view, we continue to focus on stock picks with limited risks but a lot of profit potential. Here are a couple of names that have recently reversed trends.
BK – Bank of New York Mellon Corp
BK has been on a downtrend for almost two decades after hitting its all-time high of 60.99. Technical analysis reveals a massive reversal structure after the stock breached resistance at 49. It is currently building a base at that level to sustain its momentum. The stock rallied after posting a higher low of 50.57. This indicates that BK is primed to make the next move up.
Accumulate shares to as close a price of 49 as possible. Buy more once it breaches resistance at 53. When it does, it is likely to hit 57 next. Take that out, and we get to 59. Last known resistance is its record high of 60.99. Break that, and we have a clear path to our target of 80.
Should the stock break it’s support of 49, next line of support is 46 and then followed by 43. Strong support can be found at 36.
Weekly BK Chart
Monthly BK Chart
Summary of Strategy
Buy: 49 – 53
Support: 49, 46, 43 with strong support at 36
Resistance: 53, 57, 59, and 60.99
Target: New all-time high at 80
Useless: Only when support at 36 is broken
AZO – Autozone Inc
AZO is another stock that went on a downtrend after hitting its all-time high at 819.54. It posted a large bearish structure that led to a nosedive of more than $300 in value in a span of 25 months. Bulls defended support at 497 where the stock consolidated.
Yesterday, the stock rallied to a high of 633.24 before retreating and closed at 607.63. The action generated a candlestick indicating that AZO is not yet primed to make the next leg up.
This is good news as this provides you the opportunity to buy the stock at a discount. AZO may revisit its support at 583 which is a good level to accumulate shares. Buy more once the stock breaches resistance at 608 with a volume of at least 1 million. Breakout at 608 gives us a target of 720.
Weekly AZO Chart
Monthly AZO Chart
Summary of Strategy
Buy: as close to 583 with the intention of buying more when breakout at 608 is confirmed
Support: 583, 570, and 520
Resistance: 620, 671, and 702
Useless: Only when support at 493 is breached
Disclaimer: The writer has no investment stake in the stocks mentioned above.
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