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Stock Picks: Invest in SIG and TPR

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The S&P 500 Index (SPX) is on a tear as it recorded another fresh high of 2,833.03 yesterday. RSIs in the weekly and monthly charts are at their highest level since 1981. While this shows the incredible bullish momentum of the index, investors should take serious caution because it also indicates that the SPX is in extreme overbought territory. It is a territory that no one has ventured since the 1980s.

However, if you still wish to invest, we recommend selecting issues that are near strong support levels. You risk very little in case the index suddenly corrects, but you are poised to gain a lot if it continues its unstoppable streak. Let’s look at stocks that are close to reliable support levels.

SIG – Signet Jewelers Limited

Signet Jewelers Limited is the largest jewelry retailer in the US, UK, and Canada. With annual sales of approximately $6.4 billion, they operate around 3,600 specialty jewelry stores under the name brands JamesAllen.com, Peoples, Piercing Pagoda, Ernest Jones, H. Samuel, Jared The Galleria of Jewelry, Zales, and Kay Jewelers. Their trademark is branded and differentiated, and exclusive merchandise is offered at basic price ranges with compelling value propositions.

SIG went in a downtrend in January 2016 when it registered a lower high of 135.59. Since then, the stock registered one lower high after the other until it tested support of 50 in May 2017. It bounced from that support level and generated a higher high of 77.94 in November 2017. Even though the stock fell back to 50 the following week, the price action suggests that the stock may have finally found its bottom.

Technical analysis reveal that SIG successfully retested support of 50 on the week of November 20. In addition, volume spiked during that week from an average of around 10 million traded shares per week to a surge of over 35 million. This is a good sign that sellers are losing ammunition.

The strategy is to buy as close to the 50 support level as possible. Should that support level hold firm, our target is the top end of the range of 80.

Take note: SIG has not yet reversed its trend. We are just playing the range. Buy at support, and sell at resistance.  

Weekly SIG Chart

Monthly SIG Chart

As of January 22, the Signet Jewelers Limited stock closed at 55.87.

Summary of Strategy

Buy: As close to 50 as possible

Target: 80

Stop: A close below 48 negates this trade call

 

TPR – Tapestry Incorporated

Tapestry Incorporated is a house of luxury in New York. Included in their portfolio are the modern brands Coach, Kate Spade New York, and Stuart Weitzman. The company aims to embody the approachable and inviting lifestyle that appeals to global audiences through quality, craftsmanship, creativity, and freedom of expression.

TPR went bearish in September 2012 when it generated a lower high of 63.24. The decline was initially slow until a drop below support of 50 in May 2014 accelerated the downtrend. The stock finally found its bottom at 27.22 in September 2015.

Technical analysis reveal that TPR has managed to reverse its trend when it broke out of an inverted head and shoulder pattern in May 2017. The market then pulled back, but it did create a bullish higher low at 40. Now that the stock is once again above the 44 resistance level, which is a good opportunity to place buy orders.

The strategy is to buy as close to 44 support as possible with a target of 60. Keep in mind that TPR is on an uptrend, so 60 may just be the initial target.

Weekly TPR Chart

Monthly TPR Chart

As of January 22, the Tapestry Incorporated stock closed at 47.51.

Summary of Strategy

Buy: 44

Target: 60

Stop: A close below 40 invalidates this trade call.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.8 stars on average, based on 326 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

Traders Buying Activision Blizzard Options

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

With the S&P 500 having recovered most of its Christmas losses, there are still stocks that have not even started to move away from their lows. Today we are going to analyze one of those.

Activision Blizzard (NASDAQ: ATVI) is a US based company that produces and sells game consoles, PC and mobile gaming content. Headquartered in Santa Monica, CA, ATVI is one of the largest gaming and entertainment companies in the world. It was founded in 2008 after the Vivendi Games and Activision merger, and currently owns such brands as Call of Duty, Quake, and World of Warcraft, among others.

In the last 6 months of 2018 ATVI experienced its most negative period in history, having lost around 50%.

Fundamentally, this was sudden, as all quarterly reports exceeded expectations.

The chart shows revenue went down in early 2018, but this is okay given the seasonal factor, and Q4 is sure to yield nice profits to ATVI.

With the reports being so good, then, what made the stock plunge so much? First, the market went down overall, but there were some other reasons, too. One of them is the lower expectations on Q4 2018 earnings. They were first forecast at $3.06B, but in November, the company lowered them down to $3.04. Another reason was the news of fewer users in Q3.

Then, four top managers got fired, including the CEO and president, as they were unable to create a new game during 2018; this was followed by Michael Morhaime, the former Blizzard CEO, leaving the company. He stopped being president in October and became an adviser, but he will definitely have left by April 2019.

Done with firing? Not really. In February, someone let slip the company is getting ready for a massive job cut, firing over 100 employees, in order to reduce costs.

Breaking off with Bungie added fuel to the fire, with the stock plunging by 7%. Activision Blizzard and Bungie worked together on Destiny, but this did not prove fruitful. In November, Activision Blizzard provided Destiny 2 for free just to ramp up the number of users, which means the sales were not very good. At Bungie, however, people reacted positively, as they were very happy to get rid of the strict Activision Blizzard schedule.

For ATVI, however, this not only caused the stock to plunge, it may have also led to trials initiated by investors. A few companies are already considering legal action because of the loss of potential profits. All these negative reasons are still keeping the stock near its lows. The reasons are already priced in the market, though, as the news on legal actions were known in January, while the firing campaign may be good for the company.

In December, we mentioned General Motors (NYSE: GM), where the management decided to cut jobs, and the stock went finally up, forming an uptrend.

Once Activision Blizzard is able to reduce costs, this may happen to this company as well. The market is expecting a positive Q4 report, which may change investor sentiment, which is now negative.

The P/E is currently at 17.54, with the average being 18.91, which means the stock does have some potential.

With such a large stock fall, the short float is quite low, 2.23%, meaning there are few people who want to capitalize on the fall.

Another important factor that may signal a rise is the news on buying 16,000 call options at $46, with the expiry on Feb 15. Traders have to pay a premium in order to buy options, and the price must rise above the strike ($46 in this case) for them to get profits; this means the price is very much expected to rise above $46 by Friday.

Technically, there is a descending trend, with the price being below the 200-day SMA. Once the price approaches $45, however, the volumes go up, which shows the traders’ interest.

A good report may well push the stock above $50, but the price should stay there for a while before one could start taking midterm longs. The target may be at around $65 or $70.

Those who bought calls hoped for a good report, but the options will expire in a couple of days (or sooner), and this support will come to an end. In order to understand whether one should continue holding longs on ATVI, one should monitor the number of new users and management speeches. The rising number of users may change the current negative trend, and, in this case, even the legal actions won’t be a big deal.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 30 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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Stock Picks

Stock Pick: Foot Locker Inc. (FL)

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Foot Locker Inc. (FL) is an American retailer of apparel and shoes. The company operates 3,270 stores in 27 countries in North America, Europe, and Asia. These stores come in various formats, including Foot Locker, Kids Foot Locker, Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and SIX:02. As of January 2019, the company has 15,141 employees.

Technical Analysis of Foot Locker Inc. (FL)

We like FL because it is one of the few S&P 500 stocks that has gone through a major correction and is now showing signs of reversal. After printing an all-time high of $79.43 in December 2016, the stock showed signs of bullish exhaustion. The combination of bearish divergence and a double top pattern was enough to drive FL to as low as $28.42 in November 2017.

From that point, the stock bottomed out and started its reversal process. Over a year later, we believe that FL might have reversed its trend.

Technical analysis shows that FL has breached resistance of $52 in May 2018. This triggered the breakout from the inverse head and shoulders pattern on the weekly chart. While the stock pulled back and went below $52 in July 2018, the stock remained bullish. After all, it printed a higher low setup of $44.47 in October 2018.

With a higher low in place, FL once again took out resistance of $52 and climbed as high as $58.67 this month. Now, the stock is facing resistance at the 200 moving average on the weekly chart. The expected pullback will likely send FL down to $52 and flip the resistance into support.

Fundamental Analysis of Foot Locker Inc (FL)

In addition to our technical analysis, fundamental analysis also backs our bullish view.

The third-quarter 2018 performance of Foot Locker Inc. beat analyst estimates. Analysts projected that FL will print sales of $1,846 million yet the company generated total sales of $1,860 million. Also, analysts projected earnings per share of 92 cents. However, the company came out with surprising quarterly earnings of 95 cents per share.

Lastly, the trailing twelve months price-to-earnings ratio (PE ratio TTM) of FL is 12.85. The stock is undervalued considering that the PE ratio TTM of the apparel and shoes industry is 14.42. On the surface, the difference might not be significant. However, if you take into account that the four-year maximum of FL is 19.13, then it becomes more apparent that the stock has more room to grow.

The strategy is to be patient and buy on dips as close to $52 as possible. As long as bulls hold this level, FL will likely generate the momentum to bounce to our target of $72. Take that out and the next target is $78.

The timeline for the target is more than six months.

Weekly FL Chart


Monthly FL Chart

As of this writing, the Foot Locker Inc stock (FL) is trading at $56.68.

Summary of Strategy

Buy: On dips as close to $52 as possible.

Targets:  $72 and $78.

Stop: Close below $49.50.

 

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.8 stars on average, based on 326 rated postsKiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.




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Analysis

High Risk, High Yield

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By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

After Donald Trump became President he told investors it was he who made the stock market rise. When the market went down, however, most blamed Trump again.

In 2018, the indices reached their highs and started correcting, which meant the ascending trend faded out and the market needed a new driver to start going up again. The US is taking on a new election in 2020, and until then Trump has to create that driver for the market in order to win it. And indeed, he does have a few silver bullets to support the national economy.

The Sino-US trade wars were unable to stop the market rise at once, but sped up the reach of the highs. With the ceasefire achieved, the market went positive, as the customs duties finally started spoiling companies’ earning reports.

The tech companies were the first to suffer. Thus, Apple reported iPhone sales declines, which according to Tim Cook, happened because of the trade war.

If the US-China relations improve in the nearest future, this will help the stock market to rise again – a good move for Donald Trump. While imposing duties was quite quick, lifting them will surely require a lot of time; this will push news on various agreements between the US and China into the market, and that will help  prices to start rallying again.

With the tech segment suffering most of all, it would be reasonable to assume its rising potential is also quite high.

Among the techs, Apple is of course in focus, as it’s a leading company here. Previously, iPhone sales decline could be explained with the trade wars, but now there’s also Qualcomm that, through legal actions, managed to ban selling iPhone products in China and Germany because of patent infringements. Apple, however, is still selling iPhones in China, even at risk that its representatives may get arrested. This is why Q1 report may fall behind the expectations, and the stock may get pushed down again. The price may fall to $140, and only positive news on Qualcomm claims may change the situation to the better.

Apart from Apple, the tech sector has a lot of companies, and each of them may react differently to the improving Sino-US relations. The corporations where most revenues come from China are first to win, of course.

One of such is Skyworks Solutions (NASDAQ: SWKS), which produces mobile network components. 83% of SWKS revenue comes from China. Its P/E is 9.70, while the average figure in the tech sector is 26.30, meaning Skyworks is very much underpriced. If the US and China come to an agreement, this company is very likely to increase its revenue and get investors’ attention. Ironically, the major risk is again Apple, as this company’s orders constitute around 40% of Skyworks revenue. If, however, Apple sales are able to start rising again, Skyworks will benefit from both factors.

Whenever the price breaks out of $70 and stays above, the price could rise further to $90.

Broadcom (NASDAQ: AVGO) has over 54% of the revenue coming from China. It is an integration microchip producer that is among top 20 semiconductor selling companies. It’s P/E is 12.60%, slightly higher than that of Skyworks Solutions, but still far behind the 26.30 average.

Broadcom also depends from Apple’s orders, but its share is just 20%, so the risks are lower. Still, a slight decline in revenues is expected in Q1.

Broadcom’s outlook is overall better than that of Skyworks. Technically, the price is above the 200-day SMA, and there’s an uptrend forming. When the entire market was falling at Xmas, Broadcom barely reacted, which signals the positive investor sentiment.

Once the price goes above $270, the stock may then rise to $300.

One of the most underpriced tech companies is Micron (NASDAQ: MU), another semiconductor producer that mainly makes RAM modules, SSD drives and CMOS detectors.

It’s ‘Chinese’ share is 51%, while the P/E is at 2.90, compared to 26.30 average. Over the last six months, the earnings reports showed the highest revenue, while the stock price was going down, just because of the RAM and flash drive supply and demand imbalance. The market is still oversupplied with these devices, and Micron is expected to lose revenues for the following two quarters as well. In Q4 2018, the earnings already fell by 6% QoQ.

Considering the above, Micron decided to increase its production by only 15% instead of 20%, as planned before, which will allow it to decrease the supply. Samsung is also planning to decrease its memory card production in order to slow down the price fall. By Q3 2019, the demand for memory devices is expected to rise again, and the price should recover.

The financial market is all about expectations, and, in this case, the decrease of memory devices demand is already priced, this is why Micron stock have fallen by 50% for the last six months. The current price may prove to be the best for going long.

When $34 got broken out, the volume increased sharply, which is the first sign of the reversal. The stock is currently trading above $36, and in case it stays there, it may go as high as $50 per share.

Each of the above companies is facing some issues, which are bound to get resolved sooner or later. Still, all of them have the same problem: the Sino-US trade war that prevents them for recovering and rising. Once the relations between the two countries get better, the game is sure to change a lot.

The key risk factor here is Donald Trump being very unpredictable. However, the potential yield is quite high, too.

Disclaimer

Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

Rate this post:

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1 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 51 vote, average: 5.00 out of 5 (1 votes, average: 5.00 out of 5)
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4.7 stars on average, based on 30 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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