Stock Recommendations: Buy USAT, MAXR, and MNST

The S&P 500 continued its upward march last week. However, the rally has pushed the RSI to the most overbought levels in the past two decades. This, coupled with a high P/E makes the markets susceptible to a correction in case of any adverse news.

Key points

  1. The US markets are overbought, but continue to be in a strong bull trend
  2. We want to buy stocks only for the short-term and benefit from the ongoing momentum
  3. We suggest buying USAT, MAXR, and MNST for the short-term

We got a glimpse of the market vulnerability on Friday, when the markets sold off, following the news of Michael Flynn, the former national security adviser, admitting lying to the FBI. The markets were on course to end in the red, however, luckily, the news of the Senate passing the tax proposals got the bulls back into action.

Some aggressive buying at the lows ensured that the index recovered most of its losses and closed only marginally in the red.

The news on these two fronts will continue to influence the markets in the near future.

As the markets are still in an uptrend and close to their highs, we shall continue to look for buying opportunities. However, we recommend trading for the short-term only. We don’t encourage long-term buying at the current levels.

Let’s look at the attractive setups for this week. Our bullish view will be invalidated if the S&P 500 falls below 2600 levels.

USAT – Buy 9, Stop Loss (SL) 8, Target 11

Weekly chart

The stock has lost a lot of money for its long-term investors. It had touched a high of $656.25 in end-1999, during the peak of the dotcom bubble. From there, it entered into a long-term downtrend, which bottomed out at $0.46 in mid-2010. Since the lows, the stock has been slowly moving higher, which shows accumulation at lower levels. It is forming a rounding bottom and is likely to rally towards $12 levels. The trend in the stock is changing from down to up. Let’s see the short-term opportunity that is setting up.

Daily chart

The stock picked up momentum in end-October as it surged from $6 to $8.8 levels within a month. Due to this, it had become overbought in the short-term. For the past ten days, it has been consolidating near the 52-week highs, without giving up any ground. This shows that the traders are unwilling to book profits in a hurry. They expect the stock to rally to higher levels.

If the stock breaks out and closes above $8.8, we anticipate the uptrend to resume, which will carry it to $11 levels in the short-term. Therefore, we can buy at $9 and keep a stop loss of $8.

MAXR – Buy 64.75, SL 62, Target 70

Daily chart

The stock has a very short trading history, therefore, we are not analyzing its weekly chart. As it is currently in an uptrend, we believe that it can be bought.

For the past month and a half, the stock was facing selling at the $63.83 levels. However, on Friday, it broke out of the overhead resistance and closed above it. This shows that the bulls are likely to propel the stock higher.

We can buy it at $64.75, above Friday’s highs with a stop loss of $62. We anticipate a move to $70 levels.

MNST – Buy 63, SL 60, Target 67 and higher

Weekly chart

The stock has been in a  long-term uptrend. It tends to move up, then consolidate/correct for a few months and then resume its uptrend. The stock entered into a consolidation in early-2015, which continued till 2017. In this period, it formed a broadening top. Three weeks back, it broke out of the formation. Though the pattern target of the breakout of the pattern is $80, we want to get in and out of the trade quickly. Therefore, let’s identify its short-term targets.

Daily chart

The stock has been in a steady uptrend forming higher highs and higher lows on the daily chart. It has not broken below the 50-day SMA since early-May of this year. The stock picked up momentum and rallied from $56 On November 09 to $62.8 on November 14. After that, it corrected back to the resistance line of the broadening top and has risen once again.

We now expect it to rally to its first target objective of $67.Therefore, we can buy at $63, above Friday’s high and keep a SL of $60.

Note

As the markets are likely to remain volatile depending on the news flow, please reduce the allocation size to 50% of normal.

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.