Buy These Stocks to Ride the Momentum

After a minor correction in the early part of last week, the S&P 500 came back strongly and closed at new lifetime highs on Friday. Strong growth numbers and excellent results by major corporations boosted the index higher. Additionally, the expectation of a tax reform before the end of the year will keep a floor beneath the markets.

Key points

  1. The US stock markets are entering the final two months of the year on a strong footing
  2. We recommend trading in stocks that are showing strength
  3. Buy ADBE, AWK, IRDM, LFC, and WTBA

As October ends, the markets enter a favorable period, which has historically rewarded the investors. However, as we have said earlier, we don’t believe that this is a good time to invest for the long-term because the markets have more or less discounted the positives arising out of a tax cut.

Notwithstanding, a market with a strong bullish momentum behind it is a good opportunity to trade for the short-term. Therefore, we continue to search for strong stocks that offer an attractive risk to reward ratio. However, traders are requested to trail their stops higher as the stocks move up because the markets can turnaround in a jiffy.

Never forget the two golden rules of the legendary investor Warren Buffet. “Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1.”

Let’s look at this week’s selection.

ADBE – Buy 177.33, Stop Loss (SL) 168, Target 197

Weekly chart

Adobe Sys has been in a steady uptrend since 2013. However, since the beginning of the year, the stock has gained momentum, resulting in a steeper angle of ascent. The stock was forming a negative divergence on the RSI for the past few months, which has been invalidated with the rally in the past two weeks. We want to hop along for a short-term trade on it. Let’s identify the entry and exit levels.

Daily chart

The stock gapped up on October 19 and after a three-day shallow correction, it has resumed its uptrend. It made a new lifetime high on Friday, which shows that the bulls don’t want to wait for a dip to enter. They have a feeling of being left out of the trade, therefore, they continue to buy at higher levels.

We expect this uptrend to continue until the stock reaches its pattern target of $197. Therefore, we recommend a buy at the current levels of $177.33, with a stop loss of $168. We don’t want to hang on to this stock if it doesn’t continue its march higher.

AWK – Buy on a close above 88, SL 85.5, Target 94

Weekly chart

The stock has been in an uptrend since 2010. It intermittently undergoes a period of a short correction/consolidation and then resumes its uptrend. It underwent a similar correction from mid-2016 to end-2016 and since then has resumed its uptrend.  We expect the stock to extend its up move in the next two months.

Daily chart

The stock rose sharply from $80 to $88 levels in a short span of time. After a shallow correction of two days, the stock has been attempting to resume its uptrend. Though on Thursday and Friday, the breakouts to new highs did not sustain, we expect the bulls to try once again. If they are able to breakout and close above $88 levels, we expect the next leg of the rally to reach $94 levels. Hence, we recommend a buy on a breakout and close above $88. Our stop loss for the trade is $85.5.

IRDM – Buy on dips to 12, SL 10.7, Target 15

Weekly chart

The stock has been lacklustre for the past nine years, trading between $5.5 and $11.5. However, in 2017, the stock has been attempting to breakout of the overhead resistance. While the previous four attempts failed, the stock broke out to new highs last week. We expect the stock to start a new uptrend, as it has broken out after a large base formation.

Daily chart

The stock has formed an ascending triangle pattern on the daily chart. On Thursday, the stock completed the breakout of the bullish pattern, which gives it a pattern target of $15. However, we expect the stock to retest the breakout levels of $11.55. Therefore, please wait for a successful retest of $11.6 levels and buy around the $12 mark. Please keep a stop loss of $10.7. We don’t want to stick with IRDM if it falls back into the range once again.

LFC – Buy 16.7, SL 16, Target 18.3

Weekly chart

The stock has been range bound for the past decade between $11 on the lower end and $26.5 on the upper end. An attempt to breakdown of the range in 2016 failed and the stock has been in a pullback since then. In the medium-term, the stock can again rally to the upper end of the range. However, as we are trading for the short-term, let’s look at the important levels to watch out for.

Daily chart

After rising from the lows, the stock had been stuck in a range of $14.78 to $16.56 for the past six months. On Friday, the stock broke out and closed above the upper end of the range. We expect the stock to start an uptrend and rally to $18.3 levels. Therefore, we recommend a buy at $16.7. If the stock falls back into the range, it will signal a failed breakout, therefore, please keep a close stop loss of $16.

WTBA – Buy 25.5, SL 24, Target 29

Weekly chart

The stock has been in an uptrend since bottoming out in 2009. The stock picked up momentum after the US Presidential elections last year. However, as the prospects of a fiscal stimulus and tax reforms dimmed, the bulls lost interest in the stock and it was stuck in a range. However, the stock has again picked up momentum as the prospects of a tax cut have increased.

Daily chart

In 2017, the stock has been range bound between $21 and $25. The stock rose sharply from the lower end of the range in mid-August and had been consolidating near the upper end of the range for the past few days. On Friday, the stock broke out of the range. We, now, expect the stock to rally towards its target objective of $29. Therefore, we recommend a buy at $25.5, above Friday’s highs. We can keep a SL of $24. We don’t want to keep the stock if it again falls back into the range.

Featured image courtesy of Shutterstock. 

 

Author:
Rakesh Upadhyay is a Technical Analyst and Portfolio Consultant for The Summit Group. He has more than a decade of experience as a private trader. His philosophy is to use technical analysis for momentum trading and fundamental analysis for long-term positions. Rakesh likes to keep himself fit by lifting weights and considers himself to be a spiritual person.