Fifteen years is a long time by many measures, and it was way back in 2000 that the Nasdaq Composite reached the 5,000 level. It was a first, and the Nasdaq hasn’t been able to return to those highs ever since.
Click to EnlargeAsk any market participant that was around at the time and they’ll tell you about the silly dotcom companies with no profits (and some with no revenue) trading at sky-high valuations.
It was a wild time, and the sharp rise in the Nasdaq Composite in 1999 reflected the action. (It spiked 88% within the year.)
But like all asset prices that rise too quickly, the writing was on the wall and by the spring of the year 2000 the Nasdaq had topped out and settled into a sharp two-year downtrend that shook the new technology space to the core.
The Nasdaq then slowly began to recover and, after an important higher low in 2009 (versus the 2002 lows) as a result of the financial crisis, the composite has risen meaningfully in recent years and is now just a few percentage points away from the top set in 2000.
The bulls are working hard to push the index back to the highs set in 2000 just north of the 5,000 area. However, at the current juncture, lots of Nasdaq stocks are either overextended on the upside or otherwise offer weak risk/reward to participate in this next push higher in the Nasdaq. In other words, selectivity has increased.
But here are three large-cap Nasdaq stocks that have well-defined risk-reward for active investors to focus on — stocks that could push higher with the Nasdaq.
Regeneron Pharmaceuticals Inc (REGN)
Click to EnlargeBiotechnology stocks as a group have been on fire again in recent weeks, but shares of bio-pharmaceutical company Regeneron Pharmaceuticals Inc (NASDAQ:REGN) just recently snuck past a technical resistance line that could still release the stock even higher
Much like the broader market, REGN stock was largely stuck in a sideways move from November through the present, but the 5% rally on February 19 seems to have put some renewed pep in its step. After topping in early December, REGN stock settled into a tight consolidation phase and in early February began bumping into the rising 100-day simple moving average (blue line).
The rally on February 19 marginally pushed the stock past the diagonal resistance line from the December top and, barring any quick bearish reversals in the broader biotechnology sector, REGN stock has good potential to lift higher along with the Nasdaq Composite in the near to medium-term.
REGN stock has room to move toward $460 for now, while any drop below $400 at the latest would be raising a red flag.
SanDisk Corporation (SNDK)
Click to EnlargeShares of data storage solutions company SanDisk Corporation (NASDAQ:SNDK) have largely and notably diverged from the Nasdaq Composite so far this year.
SNDK stock had mostly followed along with the broader market’s multi-month consolidation phase until its profit warning on January 12. The company lowered its top-line guidance due to weaker-than-expected retail products. SNDK stock dropped nearly 14% on January 12 as a result but began to bounce on January 22 after the company released the actual earnings for the previous quarter.
Stocks that bottom after earnings results often see an initial selling reaction, as was the case with SNDK, but once the last of the sellers have been flushed out there is little alternative than to begin pushing higher. From that perspective, after being punished from its profit warning, SNDK may be well positioned to play catch-up with the rest of the technology sector and begin to mean-revert higher into the big blue empty on the chart (a result of the January 12 down-gap).
A push past the $84 level could begin a move into the high $80s or low $90s to begin with.
O’Reilly Automotive Inc (ORLY)
Click to EnlargeConsumer discretionary stocks as a group showed relative strength versus the less cyclically oriented stocks in recent weeks. Within this space, automotive parts retailer O’Reilly Automotive Inc (NASDAQ:ORLY) caught my eye.
Whereas the setup in SNDK stock is a catch-up and mean-reversion play, ORLY stock is a trend following setup. An object in motion tends to stay in motion, thus the strong breakout and up-gap moves from last October and again early February in shares of ORLY are to be respected.
Over time, active investors and traders learn not to fight a trend. In that vein, this strong upward motion in ORLY stock, which has consolidated nicely after each rally, can still move higher. Specifically, a measured move higher out of the most recent multi-week consolidation period could see this stock near $220, but as with the other two stocks, the broader Nasdaq Composite will likely need to push higher for ORLY to reach this next upside target.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
