The S&P 500 has broken out to new lifetime highs and has closed above the critical psychological resistance level of 2500, albeit marginally. Nevertheless, the index is likely to gain momentum from here on, extending its aging bull market gains, as the shorts will be forced to cover.
- The S&P 500 has broken out of the critical overhead resistance level of 2500
- Stronger stocks are likely to outperform if the index continues higher
- However, at these elevated levels, traders should enter stocks only if the risk to reward ratio is attractive
- Allocate less than 50% of the normal position size while trading pure momentum plays
Therefore, this week, we have selected a few stocks that have broken out to new highs and are likely to extend their gains along with the index. However, traders should keep in mind that the markets are richly valued at the current levels and can quickly turn down from here. Therefore, please close the long positions if the stop loss is hit.
Also, as the stocks rally, please keep trailing the stop loss higher to protect the paper profits.
BA – Buy 250, SL 236, Target 265 and higher
Boeing started an uptrend in end-2016 after consolidating for about three years. It gained momentum once it broke out to new highs in 2017. Since then, the stock has been in a vertical rally, outperforming the index, which has pushed the RSI into the overbought territory.
Nevertheless, after consolidating for the past few weeks, the stock again broke out to new highs last week. We expect the uptrend to continue, therefore we want to piggyback on it for quick gains. Let’s look at the critical levels to watch out for.
Boeing broke out to new highs on Friday. The consolidation of the past few weeks has corrected the extreme overbought conditions on the RSI. With the latest breakout, we expect the stock to resume its uptrend and rally to $265 levels. The stock can easily surpass its target if the momentum sustains. Therefore, traders can enter at $250 and keep a stop loss of $236. This trade offers a risk to reward ratio of 1:1.
NSC – Buy 128, SL 120, Target 140
The stock bottomed out in February of last year and rallied until February of this year. Thereafter, the stock entered a period of consolidation that lasted for almost seven months. Last week, the stock broke out of the stiff overhead resistance of $125, which shows that the bulls have regained their strength. We now expect the stock to resume its uptrend.
On Monday of the previous week, the stock broke out of $125, which had been acting as a stiff resistance. Thereafter, it extended its gains during the remainder of the week. This shows that the bulls are willing to buy at higher levels. We can buy the stock at $128 and keep a stop loss of $120. We don’t want to hang on to the stock if it falls back into the range. The first target objective is $140. This trade carries a risk of $8 and a probable reward of $12, if it performs according to our expectations.
MED – Buy 57, SL 54, Target 68
The stock has a history of vertical rallies, as shown on the chart. This time too, the stock has embarked on a similar sharp up move. Therefore, we want to hop on this ride, expecting it to continue higher. If proven correct, this can be a rewarding trade. However, historical evidence shows that the stock falls sharply once the uptrend ends. Therefore, please strictly adhere to the recommended stop loss.
The stock rose vertically from $42.12 on August 08 to $56.41 on August 18. Thereafter, the stock entered a shallow correction, which was arrested just above $54 levels.
If the stock breaks out and closes above $57, the next leg of up move can carry it to $68 levels. As this is a pure momentum play and has a history of correcting sharply from its highs, we don’t want to keep a deep stop loss. Our stop loss should be below the recent swing lows, at $54. Please trail the stops higher as the stock continues its journey northwards. The risk is $3, while the reward is $11. However, this is a risky play, therefore, please trade it with only 50% of the normal allocation size.
MYOK – Buy 48, SL 40, Target 70
In the past two months, the stock has almost tripled in value. This shows a very strong momentum in its favor. As a result, the RSI has become extremely overbought. However, the correction only lasted for two weeks, which shows that the bulls are piling on the stock on every small dip. The stock is likely to resume its uptrend once it breaks out to new highs.
After being range bound for most of 2017, the stock broke out with a huge gap up on August 07 and has never looked back. It has almost tripled in value since then, which shows the strong momentum behind it. After a shallow correction, which was arrested just above $40 levels, the stock is on the verge of a breakout to new highs once again.
The stock can be purchased at $48 and the stop loss should be maintained at $40. We don’t want to hold the stock below this level. On the upside, the stock can rally to $70 levels if it can build up momentum once again. However, we recommend trailing the stop loss higher once the stock moves up as it is a high-risk trade. Also, please keep the allocation size small, about 50% of normal.
PEGI – Buy 26.3, SL 23, Target 31
The stock has not broken out to new lifetime highs; however, it is quoting at its 52-week highs. We like the stock because it has broken out of a bullish ascending triangle pattern, which has a target of $31.59. The stock offers a decent risk to reward ratio, therefore, we want to buy it.
Usually, a breakout pulls back and retests its earlier resistance level, which in this case is $25.13. However, sometimes, the breakout continues higher and never looks back. If the markets remain bullish, we might not get a pullback.
Therefore, we want to buy the stock at $26.3 and keep a stop loss of $23. We don’t want to hold the stock if it falls and sustains below $25 levels. Our target objective is $31. The risk is $3.3, while the probability of reward is $4.7. This is not a momentum play; hence, this is likely to rise slowly.
Trade Recommendation: Stellar
The price bounces from SMA50 which is a support line for the market. MACD lines support upward movement. Also we can draw a pennant chart pattern which also confirms further upward movement. If the price breaks the resistance line of the pennant, this pattern will be realized as a continuation pattern. It will give us an additional confirmation of the upward movement. Pending orders for buy should be placed at 0.035000 level with stop orders at 0.028000 level. The main profit target should be at 0.048000 level. The part of trade volume can be left for the higher target at 0.070000 level. If you don’t use leverage, recommended trading volume for this trade is up to 5% from your deposit.
Profit Targets: 0.048000
The trading signal is based on Poloniex chart.
Trade Recommendation: Lisk
A new attempt to catch a trend reversal. The price diverges with MACD and it gives us a buy signal on the falling market. DMI allows to open long trades. We should place pending orders for buy above the previous high at 0.000840 level. Stop orders must be placed below the support at 0.000680 level. Profit targets are 0.001200 and 0.001400 levels. The part of trade volume can be left for long run. If you don’t use leverage, recommended trading volume for this trade is up to 5% from your deposit.
Profit Targets: 0.001200 and 0.001400
The trading signal is based on Bittrex chart.
Buy FDS, PPC, BERY, and IIVI for the short-term
The US tax reforms received a major boost on Thursday when a measure approved by the Senate, enabled the Republicans to proceed with the tax cuts, without the support of the Democratic party. Suddenly, passage of the tax cuts looks more plausible.
- Positive news is flowing on the tax reforms front.
- Tax reforms are likely to boost the S&P’s earnings significantly
- The stocks are likely to remain buoyant in the final quarter of the year
- Buy FDS
- Buy PPC
- Buy BERY
- Buy IIVI
Goldman Sachs believes that if corporate tax rates are reduced from 35 percent to 20 percent, it will increase the annual per-share earnings of the S&P 500 by $15. Consequently, the stock market will look a lot less richly valued on a forward price to earnings basis.
With this bullish backdrop, the stock markets are likely to remain buoyant in the short-term. However, we don’t advise investing for the long-term at these levels. We believe that the markets will fall within the next few months, offering an opportunity to buy stocks at lower levels.
Therefore, we shall trade this market and attempt to ride the momentum. We have selected stocks that are making new 52-week highs because they have a favorable tailwind and are likely to participate in the rally, along with the S&P 500.
So, without further ado, let’s check out the stocks.
FDS – Buy 185.76, Stop Loss (SL) 174, Target 204 and 216
The stock’s history shows that it tends to rally for a few years and then enters into a shallow correction or consolidation. We find three such instances in the past decade. The stock has been in a consolidation since end-2015. Two attempts, one in September 2016 and the second in March 2017, failed to sustain the breakout.
However, the stock again broke out in end-September and extended the rally last week. It is likely to start a new uptrend now and we plan to hop along for a ride.
The stock broke out of the bullish ascending triangle formation on September 26. Thereafter, it faced resistance at the $184 levels, from where the bears attempted to sink the stock, back into the triangle.
However, the bulls provided support at the $176 levels and the stock broke out of the overhead resistance on Friday. It is now likely to rally towards its first target objective of $204. The pattern target on a breakout from the ascending triangle, however, is higher at $216.
Therefore, we recommend a buy on the stock at the current levels with a stop loss of $174. We don’t want to hang on to the stock if it falls back into the triangle once again. The stock has a risk to reward ratio of 1:1.5 at the first target objective and a ratio of about 1:2.5 at the second target objective.
PPC – Buy 31.04, SL 27, Target 37
The stock rose sharply from end-2012 to end-2014. Thereafter, it corrected and entered into three-year long consolidation, during which, it remained range bound between $17 on the lower end and $27.5 on the upper end. PPC formed a double bottom at $17.3 levels and the pattern completed when the stock broke out of $27.5 in mid-August of this year. Subsequently, the stock completed a successful retest of the breakout levels of $27.5 and rose to multi-year highs last week. We, now, expect the stock to start a new uptrend.
The stock broke out of the overhead resistance on August 15. However, the stock faced considerable resistance following the breakout. It remained sandwiched between $28 and $30 for almost two months. Finally, on October 18, the stock broke out of the range and extended its rally on October 20.
It has a pattern target of $37, which is close to the lifetime highs. There is no significant resistance in between, therefore, we recommend a buy on PPC at the current levels of $31.04. The stop loss can be kept at $27, a level not seen for more than two months. The trade offers us a risk to reward ratio of about 1:1.5.
BERY – Buy 59.88, SL 56, Target 67
BERY has been in a strong uptrend since 2016. It has a clear pattern. It rallies and then corrects towards the 20-week exponential moving average (EMA) and occasionally to the trendline drawn. On completion of the correction, it again resumes its uptrend.
Recently, the stock had again corrected to the trendline, from where it found support and broke out to new lifetime highs last week. We expect this trend to continue until the stock breaks and closes below the trendline support. We want to enter this stock as it has re-established its uptrend.
The stock broke out of the overhead resistance of $58.95 on October 06. Afterwards, it successfully retested the breakout levels and has resumed its uptrend. We can buy the stock at the current levels of $59.88 and keep a stop loss of $56. We shall close the position if the stock falls below the trendline. Our target objective is $67. The trade offers us a risk to reward ratio of about 1:2.
IIVI – Buy 43.3, SL 39, Target 52
The stock bottomed out in October-2014 around the $10.78 mark. Thereafter, it started a new uptrend that continued till February of this year, after which, the stock entered a period of correction. $41.1 has acted as a stiff resistance on the way up. However, last week, the stock broke out to new highs and we expect it to continue higher.
On the daily chart, we find that the stock has formed a bullish inverse head and shoulders pattern. The pattern completed with a breakout of the neckline on September 27. Thereafter, the stock successfully completed a retest of the neckline. The stock has a pattern target of $52. We want to enter the stock at the current levels and keep a stop loss of $39, which is just below the low created on October 19. This gives us a risk to reward ratio of greater than 1:2.
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