While most traders, including us, have been waiting for a dip in the S&P 500, it has not materialized. Forget about a 10% correction, the index has not seen a 5% drawdown for more than 325 days, according to Goldman Sachs. Since the 1930s, there have been only two instances when the index has bettered the current performance.
- The S&P continues to make new lifetime highs, which is a sign of strength
- Traders should continue to trade stocks with a suitable stop loss
- Buy TRUP
- Buy NWBI
- Buy GRPN
It has been particularly hard for traders who have been sitting on cash to invest at lower levels. The elusive dip is nowhere to be seen. While the possibility of a correction is real, it should not stop us from riding the next up move in the markets because it is impossible to predict the top in the markets.
It is only in hindsight that we come to know that a top is in place. Therefore, we suggest traders to continue trading in stocks that show a reliable chart set up.
However, considering the risk of a correction, the allocation size should be reduced to half and stop losses should be strictly adhered to. Please don’t hold on to a losing position with hope that eventually it will come up.
Though it’s true that the markets have rebounded sharply after every fall in the past few years, one of those falls will break its back because nothing goes straight to the sky. And, whenever it falls, most stocks will be affected.
Therefore, please book the loss at the recommended levels if the markets turn against you. The first loss is always the best loss.
For the past few days, the intraday volatility in the S&P 500 has reduced drastically. The intraday range has also shrunk. This is unlikely to last long. The markets will expand its range, either to the upside or to the downside within the next few days.
Though it is difficult to predict which way the markets will breakout, we want to be a part of the rally, if the markets breakout to the upside. Therefore, we have chosen a few stocks that are likely to participate in the rally, if it happens.
TRUP – Buy 28.5, Stop loss 27, Target 31.5
The stock has been in a strong uptrend, rallying over 80% returns year-to-date. This shows that the bulls have the momentum in their favor. In April of this year, the stock rallied for three weeks, followed by a two-week consolidation. Once the stock broke out of the consolidation, it ended up with two weeks of strong gains.
Currently, the stock is in a similar kind of a consolidation, after having risen from about $20.52 levels. If the stock can breakout of the consolidation, it is likely to resume its uptrend with vigor. Therefore, we like this stock. Let’s locate its buy and stop loss levels.
The stock has been in a tight consolidation for the past six days near the lifetime highs. An attempt by the bulls to breakout of the range on October 12 was unsuccessful. However, if the stock breaks out and closes above the overhead resistance of $28.3, it is likely to resume its uptrend.
As this is a momentum play, we don’t want to keep a deep stop loss. We want to buy at $28.5, which is a new high. The stop loss for the trade should be kept at $27. We don’t want to stick to the stock if it turns down after breaking out of the consolidation. The target objective is $31.5 and higher. This gives us a risk to reward ratio of 1:2.
NWBI – Buy 17.7, Stop loss 17.2, Target 18.6 and 19
The stock has been an under performer in 2017. In fact, it has hardly participated in the bull run since 2010. However, in November of last year, the stock embarked on a strong run after the US election results. Thereafter, the stock entered a correction. However, the talks of tax reforms have again boosted the stock from the lows of about $15.5 to the current levels.
The stock rallied sharply from $15.06 to $17.61 within a few days. Since the beginning of October, the stock has been trading in a tight range. We expect a breakout of the range to carry the stock towards the highs of $19. Therefore, we want to enter the stock at $17.7 and our stop loss will be $17.2. This trade has a risk to reward ratio of greater than 1:2.
However, the stock has a resistance at $18.6. If TRUP struggles to breakout of this level, traders are requested to sell 50% of their positions at these levels and hold the rest with a stop loss at breakeven. Even if the stock stops at $18.6, the trade has a risk to reward ratio of about 1:1.5.
Groupon has lost a huge amount of money for its investors. Even after the recent rally from its lows, the stock is down about 84% from its lifetime highs. Hence, at every rally, the stock is likely to face selling pressure by the investors who have invested at higher levels. However, we have chosen this stock because it is showing signs of life. Let’s zoom to the daily time frame.
The stock has been rising in an ascending channel since mid-June of this year. Though the stock had broken out of the channel on September 29, it could not sustain above it and the bears pushed it back to the channel’s support line. However, the stock has risen from this support five times in this leg of the up move thereby cementing its strength.
We expect the stock to move back to the overhead resistance of $5.35 and attempt to breakout of it. Hence, we can buy it at the current levels and keep a stop loss of $4.55, just below the channel. Once the stock reaches the $5.35 levels, the traders should raise their stops to break-even and watch for a day or two. If the stock breaks out, please trail the stop higher with a target objective of $6. However, if the stock struggles at the resistance, please close the position. If the stock stops at $5.35, we get a risk to reward ratio of 1:1, however, if the stock reaches $6, the ratio improves to greater than 1:2.
Trade Recommendation: Buy EVHC and EQT on Selling Exhaustion
The S&P 500 Index (SPX) continues its ascent as it knocks on immediate resistance at 2,660. Currently, the index is traversing overbought territory. Ideally, it takes a dip now and fill the gap between 2,640 and 2,646 which was created on December 8, 2017. That should take the RSI below 70, and give the index room to break 2,660 by next week.
Nevertheless, SPX remains aggressively bullish as long as it is above 2,600. For this edition, let’s look at stocks that appears to have found their bottom.
EVHC – Envision Corporation
EVHC has suffered massive losses in value since it made its 3-year high of 137.57 back in 2015. The stock went on a downtrend when it created a bearish pattern and failed to hold critical support at 110. Bears sent it back to as low as 23.77 which is an astronomical 82.72% drop in value. It’s all gloom and doom, but the charts show a promising picture.
Technical analysis show that the stock may have recently bottomed out. EVHC generated a massive volume of 50.45 million on November 1st which was coupled by a big gap down. In addition, volume has been decreasing day by day. Lastly, weekly RSI shows recovery from extreme overselling. These indicators tell us that the stock may have found its new support level.
The strategy is to trade the range by buying as close to 25 and selling as close to 80. Keep in mind, the stock has not flashed any sign of reversal so officially, it’s still on a downtrend. However, there’s opportunity to generate profits here by taking advantage of the consolidation period. Buy low and sell high.
Weekly EVHC Chart
Monthly EVHC Chart
As of December 11, 2017 close, the stock is at 32.90.
Summary of Strategy
Buy: between 25 and 35
Target: 80 but consider lightening positions at 45 and 60
Stop: A close below 23.77 negates this trade call
EQT – EQT Corporation
Just like EVHC, EQT suffered massive losses in value after it dropped to 47.10 from a 5-year high of 111.47. The stock went on a downtrend when critical support at 82 broke down. It lost 57.75% in value before the bulls took strong action and defended support at 50. Since then, EQT has shown signs of life which may prove to be profitable to those who invest in the stock.
Technical analysis show that the stock has found its bottom at 50. Weekly chart reveal that the stock generated volume of over 60 million on June when the average volume was just below 13 million. This signals selling exhaustion. During the same period, the stock created a hammer which indicates the presence of buyers at 50. More importantly, EQT has tested and successfully defended support level at 50 twice already. This increases the probability that the stock will no longer go below that level.
Similar to EVHC, the strategy here is to trade the range. Buy between 50 and 60 with the intention of selling at 80. As always, buy low and sell high.
Weekly EQT Chart
Monthly EQT Chart
As of December 11, 2017 close, the stock is at 57.13.
Summary of Strategy
Buy: between 50 and 60
Stop: A close below 50 invalidates this trade call
Featured image courtesy of Shutterstock.
Trade Recommendation: Ride ETN and EW on Breakout
The S&P 500 Index (SPX) flexed its muscles on Friday, December 8, as it gapped up, opening nearly 10 points higher than its previous close. With volume going below its 20-day average, the market’s telling us that sellers are running out of ammunition. The slowdown in selling has enabled bulls to push the index up, closing almost the same level as the day’s high.
The price action on December 8 affirms our bullish view. With that sentiment, let’s continue trading stocks that are on the verge of breaking out.
ETN – Eaton Corporation
The stock has suffered as much as a 42.25% loss in value during the course of its 3-year downtrend. It almost touched a high of 80 back in 2014, but bears claimed that level and sent the stock to as low as 46.19 in 2016. Fortunately for the bulls, the stock respected that support and used it to generate one higher low after another. The consecutive rallies has given ETN momentum to beach resistance at 80, albeit briefly.
While the bears continue to own that resistance level, technical analysis reveals that it’s only a matter of time before bulls conquer that level with conviction. Weekly and monthly charts reveal a large bullish reversal pattern that can take ETN to a new five-year high. Breach 80 with heavy volume of 11 million in the daily chart should attract momentum traders and give the stock a clear path to our target of 120. More importantly, breakout of this three-year resistance level should restart the uptrend for ETN.
Weekly ETN Chart
Monthly ETN Chart
Summary of Strategy
Buy: breach of 80 with volume of 11 million
Support: 76 and 72
Stop: A close below 72 negates this trade call.
EW – Edwards LifeSciences Corporation
While EW technically remains in an uptrend, it suffered as much as a 33.37% loss in value as it went through a massive corrective phase. It went as high as 121.75 in late 2016 before getting sent back by bears to as low as 81.12 in under two months. Just like ETN, however, EW used that support level to rally and post a series of higher lows. Currently, the stock is threatening to finally breach resistance at 120.
Technical analysis reveals a large bullish continuation pattern that can signal the end of EW’s corrective phase. In addition, indicators show that bulls are in a good position to take out 120. The last candlestick on the weekly chart is a hammer which indicates the presence of buyers above 110. In addition, RSI shows that the stock is far from oversold territory, giving it room to make a move up. Lastly, volume has picked up which hints that a significant number of market participants are showing interest in the stock.
The strategy is to wait for the chart to break resistance at 120 with over 9 million in volume in the daily chart. Breach of this level will attract momentum traders and may lift the stock to our target of 160. It is also important to note that there is no known resistance above 120. Hence, the stock may reach our target without much of a struggle.
Weekly EW Chart
Monthly EW Chart
Summary of Strategy
Buy: breach of 120 with volume of 9 million
Support: 112 and 110
Stop: A close below 10 invalidates this trade view.
Featured image courtesy of Shutterstock.
Trade Recommendation: Buy BBY, ZNH, CLX, and USCR
The S&P 500 made a new intraday lifetime high on Monday of last week, but it could not sustain the gains. Over the next two days, the index declined, however, the bulls stepped in at 2624.75 levels, as the news flow turned positive. The index gained ground in the last two days of the week and made a new lifetime high on a closing basis.
- Bulls continue to buy the dips, which suggests further upside to the US markets
- We want to ride the move higher through our trading positions
- Buy BBY, ZNH, CLX, and USCR
We believe that the bulls will want to end the year on a strong note, hence, the rally is likely to continue in the remaining few days of the year. After all, the index has closed positively in all the first eleven months of the year.
We, therefore, continue to look for trading opportunities on the long side. Notwithstanding, at the current levels, any adverse news, especially on the tax front can start a sharp fall. Therefore, please use a trailing stop loss to protect the position once it moves in our favor.
BBY – Buy 64.2, SL 60, Target 71
The stock had risen to a high of $59.5 in April 2006, following which it plunged to $12 by end-2012. Since then, the stock has been on a path to recovery. In May of this year, the stock made a new lifetime high, however, it could not sustain the levels. The bears again pushed the stock lower. In the last few months, the stock made a bearish head and shoulders pattern on the weekly chart.
However, last week, the stock broke out to new highs, thereby invalidating the bearish pattern. This is a bullish development, which suggests further upside. Let’s see the critical levels on it.
On the daily chart, we find that the stock had been range bound since end-May of this year, between $53 on the lower end and $61.95 on the upper end. A couple of attempts to break out of the range faced stiff resistance from the bears. However, on Friday, the stock broke out to new highs with force. This is a bullish sign. We expect the stock to now move towards its pattern target of $71. Hence, we suggest buying it at $64.2, above Friday’s intraday highs with a SL of $60.
ZNH – Buy 46.5, SL 42, Target 53, 59
The stock has not done much in the past decade. After rallying to dizzying heights a decade earlier, the stock plunged during the global financial crisis. Thereafter, it has been in recovery mode, but it has not been able to make new lifetime highs. Nevertheless, the pattern suggests that a retest of the highs is possible. Therefore, we want to enter this trade.
The stock had been range-bound between $25.6 and $42.6 for about two years. It broke out of the range on November 20. Thereafter, the bulls successfully held on to the $42.6 levels during the pullback. This shows demand for the stock at higher levels. The pattern target following the breakout of the range is $59. Therefore, we propose buying the stock at the current levels of $46.5 with a stop loss of $42.
There is a small resistance at the $53 mark, where traders can book partial profits if the stock struggles to break out of it.
CLX – Buy 146, SL 138, Target 168
The stock has been in a long-term uptrend since 2009. It entered a period of consolidation/correction in July of last year. Since then, $140.5 had been acting as a stiff resistance. Three attempts to break out of the overhead resistance failed. The stock formed a bullish ascending triangle pattern and the bulls broke out above the overhead resistance last week. Hence, we want to buy the stock, as we expect it to move higher.
The bulls managed to breakout of the ascending triangle pattern on December 04 and have managed to sustain above $140.5 levels for a week, which is a bullish sign. The stock now has a pattern target of $168. Therefore, we want to buy 50% of the allocation at $146 and the rest on a successful retest of the $141 levels. Our stop loss for the trade can be kept at $138. We don’t want to hang on to the stock if it falls back into the triangle.
USCR – Buy 85.25, SL 80, Target 92
The stock has been in an uptrend since 2012. It has been rising inside an ascending channel for more than a year. Just two weeks back, it had fallen to the trendline support of the channel, which held. We can now expect the stock to rally towards the resistance line of the channel, which is at the $92 levels.
On the daily chart, we find that the stock had been facing stiff resistance at the $80 mark. It broke out of the overhead resistance in end-August of this year, but could not sustain above it. Subsequently, it declined to the lower end of the range at $70. On November 30, the stock again broke out of $80 levels.
The bears again attempted to stem the rally at the $84 levels. However, the stock found support at $80 and rallied to new highs on Friday of last week. We, now, expect the uptrend to continue. Therefore, we recommend a buy at the current levels of $85.25, with a stop loss of $80 and a target objective of $92.
Featured image courtesy of Shutterstock.
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