The equity markets are incredibly resilient in 2021. This is in spite of many challenges, most recently fears of new versions of the novel coronavirus virus. The super rally started last year from the depth of the pandemic lows. The effort to reflate the economy may have been too big. And it is possible that the government’s stimuli programs went too far. As a result, equities remain strong providing a constant flow of stocks to buy on dips.
Just when fear and uncertainty start to manifest among traders, they quickly vanish. Last week, the CBOE volatility index (VIX) hit a five-week low. With so many questions lingering, I find this behavior somewhat reckless on Wall Street. Inside the assumption that this incredible wave of bullishness persists, today we discuss three stocks to buy. The idea is to catch midterm swings for short-term profits. Long-term investors can participate but that would depend on their time frames and patience.
I picked three completely different investment profiles on purpose. Therefore, they are not mutually exclusive and can belong in a portfolio concurrently. However, I do caution against taking too many directional trades when markets are at the all-time highs. After a rally this long, the odds of a correction increases.
The major indices are still breaking records, and the only laggard is a small-cap sector. The reaction this week to AMC Entertainment (NYSE:AMC) stock could influence the bunch. Although each company is not big enough to do that, the collective is.
Successful investing means considering all aspects of the market. We have too many questions to be comfortable in our conviction. I rely heavily on technical analysis to guide me during uncertain stints. Fundamentals are important, but why not data information from the charts to increase our odds for success?
Swing trades by definition need proper timing. Ignoring the technical tools in this day and age is a mistake. I would never willingly give up an edge to my competitor. Yes, it is a competition because for every buyer there is a seller on the other end. Each party believes that the other is making a mistake. Time will be the ultimate judge on that.
The three stocks to buy today are:
Stocks to Buy: Ebay (EBAY)
eBay for a long while was the only real option for a consumer-to-consumer marketplace. Now there are dozens of competitors and Facebook (NASDAQ:FB) is the massive one. A company that has billions of monthly active users is a formidable foe. It is amazing that eBay has done this well facing down its competitors.
The stock chart this year has done well up 30% year-to-date. This is 40% better than the S&P 500. It’s also up 60% in two years, so management is on the right track. Unfortunately, EBAY stock fell 10% in just about a week. Still, it’s uncertain if it has hit a strong bottom. However, it is falling into a support zone. From a trading perspective I expect buyers as it approaches $63 per share. This has been a level in contention since the February super Spike.
That rally ended in tears as the stock fell 20% into the March correction. Luckily, the fans stepped up in droves and mounted an incredible 43% rally into the end of July. Are we dizzy yet? August so far has been nothing but pain. But the bulls remain in charge inside an ascending channel of higher-lows and higher-highs. Clearly the stock moves fast, therefore I expect volatility.
Fundamentally valuation is cheap with a 16 price-to-earnings ratio. That won’t be a reason to act on it this week. The idea here is to swing trade it with a tight stop. This is more about the rinse-and-repeat price action than anything else. Long-term investors can also participate with their own level of risk management. However, they would need to wear a trader hat if the markets suddenly sour.
My second pick today has been an underdog for decades. As the world still struggles with Covid-19 and its variants, Novavax is struggling to bring its medicine to market. The company has failed to produce one yet since its existence started in the 1990s. The NVAX stock as seen its peaks and valleys, yet investors are still resilient.
I last traded it five years ago when it collapsed under $1 per share (pre-split). Last week, the stock fell more than 10% as management once again delayed its application to the FDA. They have promised the world billions of jabs. This delay is a heart-breaker from an investment and humanitarian perspective. These delays are troublesome but maybe this time it’s different. And that’s at the heart of the bullish thesis this month.
Moreover, NVAX stock is falling into a support zone. As it approaches $177 per share it finds buyers at least for the last three months. This is a level that has been in contention for a whole year. The history of these levels in fact date back 20 years. The buyers are likely to fight for it now.
There isn’t much of a fundamental metric story to tell until they release the vaccine. They are reporting higher sales, but quite frankly it won’t matter unless they bring one to market. Experts are sure that this vaccine is the one that will put them on the map. The more the better for the sake of saving lives. My hope is that management will have good news soon.
Stocks to Buy: SPDR S&P Biotech ETF (XBI)
The iShares Biotechnology ETF (NASDAQ:IBB) and the Health Care Select Sector SPDR Fund (NYSEARCA:XLV) recently challenged their all-time highs. The XBI stock is so far lagging and miles away from its high watermark. Nevertheless, there could be a potential rally brewing. This is a technical setup with a sharp recent resistance line that could turn into a trigger.
Breaking through $131 per share would ignite a momentum trade. The opportunity is then a 10% rally before it hits resistance at $140 per share. There is support below and resistance above. Usually that builds tension and all they need is a spark. This is a purely technical setup where it is important to wait for the trigger.
This one is more time and level sensitive than the other two opportunities. In such cases, it pays to wait for confirmation of the trigger. Alternatively, traders could buy the dip into $122 per share. Regardless, there needs to be tight stops to limit the downside in case of failure.
Longer term, investors can also consider XBI stock at these levels. It has fallen from the February highs into a pivot zone. The $120 per share has been in contention for a year. Last July it failed, but then the bulls prevailed in a big way in November. That sparked a 40% rally that now has completely reverted.
This is part of normal price action albeit more exaggerated than ideal. Nevertheless, when the stock revisits a breakout line, it’s testing it for footing. As long as they hold above $120 per share, the bulls retain the upper hand. Breaking above $141 per share with bring new life to the rally.
We Are Missing Puzzle Pieces
Patience is key and moderation limits the potential damage. At this point, it would be good to remind everyone that we don’t know what we don’t know. What look like stocks to buy now can become nightmare trade.
Even the experts on Wall Street are making most of it up as they go. These macroeconomic conditions are new to everyone, including the government. They are doing their best but a lot of this is experimental.
There could be negative side effects that are in hiding. Surprise headlines are potential catalysts – and they go in both directions. This week is full of inflation reports. Those are important because they could dictate what the Federal Reserve does and when.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.