It has been a heck of a rally attempt this week on Wall Street. Still, was that price action anything more than a bear in bull’s clothing? Let’s take a look at what’s happened in the market the past few days and how to prepare for the immediate and maybe less immediate future with three diverse and opportunistic stocks to trade.
Over the past three sessions the tech-heavy Nasdaq Composite and broad-based, large-cap S&P 500 captured stunning gains of around 13% to 16% respectively. As the saying goes, one day doesn’t make a trend. But after three good days, bullish investors may have something stronger going for them. But do they? And which stocks to trade, as a bull or bear, make sense right now?
To answer those questions, investors should recognize this week’s rally was preceded by the market’s swiftest and most panicked oversold bear market in decades. As such, the well-deserved jump in stock prices could be nothing more than a classic bear market rally. These price spikes are known for their short-lived ferocity before turning treacherously against those buying with the belief a bottom is in.
I’d hazard a guess the described price action from above may have investors’ attention on Friday. But don’t be so quick to rush to judgment because Friday is showing mostly lower prices in the market. The thing is, Friday also marks day four of a rally attempt in the broader averages. And that’s good news for bulls. Tuesday’s price jump marks day one after confirming Monday’s fresh bear market low. It’s that simple. Yet its importance, as well as the action of the past two sessions, can’t be overstated. What’s more important though are days four through seven of this count.
During this window of time, investors should be monitoring the market for a follow-through day, as it’s critical to the longevity of this week’s potential bottom. Why, you ask? The fact is no intermediate turning point in the market has ever occurred without this technical confirmation. Now all that’s needed to increase the odds of a bull market is one additional meaningful rally accompanied by increased volume, without price action undercutting Tuesday’s “day one” low. Simple, right?
Bottom line, only time will tell if today’s bear market is going to be uprooted by this robust technical signal. And while I’m hopeful and see the odds as favoring a follow-through day, today simply demands looking at stocks to trade which are suited to an uncertain market environment.
Stocks to Trade: Cisco Systems (CSCO)
Source: Charts by TradingView
Cisco Systems (NASDAQ:CSCO) is the first of our stocks to trade. This old-school, large-cap technology play is a stock to buy. But don’t just take our word for it. Broker Jeffries recently hailed shares as one which investors are ‘practically stealing’ given the company’s quality fundamentals amid the indiscriminate selling of the past month.
There’s more to Cisco as well.
With a hand in the booming and now obviously important teleconferencing market via Cisco’s collaboration WebEx platform, as well as offering essential cloud-based cybersecurity for those same businesses, the drivers look good for CSCO stock.
What also looks terrific is Cisco’s 3.8% dividend. And that’s not all either.
Lastly, this stock offers a still fairly uncommon oversold monthly stochastics setup. And as that’s accompanied by a March hammer bottoming candlestick that’s formed inside layers and layers of key longer-term price support, there are plenty of reasons to see Cisco as a stock to trade from the long side.
Bed Bath and Beyond (BBBY)
Source: Charts by TradingView
The next of our stocks to trade is Bed Bath and Beyond (NASDAQ:BBBY). Moreover, this is a stock for the bears in our midst. Long before the coronavirus outbreak, BBBY stock was already showing strong signs of a fall with no chance of getting back up. What’s more, there’s still plenty of room for more downside to come.
In a nutshell, the shift in consumer preference to online shopping now owned by a cartel of companies led by Amazon (NASDAQ:AMZN), Walmart (NYSE:WMT) and Target (NYSE:TGT) has proven BBBY stock’s Achilles Heel. It’s a condition without a cure in sight. Further, with poor fundamentals and a market capitalization of around $925 million that opens the door to lower prices, bears in this heavily-shorted name remain on the right side of the price action.
My suggestion for this stock to trade is to use an intermediate-dated bear put spread. It’s practical and smart advice, given short-selling restrictions, as well as potential “bear market rallies.” And unlike shorting stock, this options strategy effectively limits and reduces exposure while leveraging the downside potential.
Enphase Energy (ENPH)
Source: Charts by TradingView
The last of our stocks to trade is Enphase Energy (NASDAQ:ENPH). For investors willing to step up to the plate in a pure-play growth play before a potential FTD signal, ENPH is a stock to buy today.
Prior to the COVID-19 pandemic, shares of this $4 billion solar mid-capitalization company were seeing a fire lit under them due to the company’s increasingly superior earnings and sales growth trends. Now that the baby was thrown out with the bathwater this past month, shares are well-positioned at the intersection of where growth meets value on the price chart.
Technically, this stock to trade has corrected and confirmed a weekly chart doji candlestick which found support off ENPH’s 62% lifetime Fibonacci cycle. Even better, the volatile shares have quickly pulled back over the last couple sessions, allowing investors to buy this leading stock on weakness near the signal price of the weekly candle.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.