The bulls suffered a setback on Tuesday, with stocks falling to end a five-day winning streak. Weakness like this has been rare since stocks bottomed on Feb. 11 on rumors of an OPEC-Russia supply freeze deal and have been sustained by hopes of a delay to any further Federal Reserve interest rate hikes.
Yet a combination of profit taking, weak export data out of China, and an ongoing crude oil inventory build weighed on sentiment. That has been a rarity lately. But I don’t think it’s the start of a new, downward trend.
With that in mind, here are three charts to watch for possible “Buy-the-Dip” opportunities: Bank of America Corp (NYSE:BAC), SPDR S&P Oil & Gas Explore & Prod. (ETF) (NYSEARCA:XOP), and Caterpillar Inc. (NYSE:CAT).
Bank of America Corp (BAC)
Bank stocks like BAC have been weighed down since late last year on worries over energy sector defaults and the drag from negative interest rates in Europe and Asia — which directly translates into less net interest margin and thus, lower profitability. Edge Pro subscribers bagged a 515% gain in their Jan $17 BAC puts during this time.
But a parting of some of these storm clouds in recent weeks helped lift BAC nearly a third off of its low. Unfortunately, that impressive rally is hitting resistance at its 50-day moving average. Watch for a breakout as a buy signal ahead of a possible run at the 200-day MA that was lass crossed to the upside in October for a gain of 23% from here.
SPDR S&P Oil & Gas Explore & Prod. (ETF) (XOP)
Energy stocks have been the center of attention since the February low as value hunters started nibbling on the sector in anticipation of an oversold relief rally in crude oil. Tuesday’s reversal in the XOP, which is exposed to stocks like recent Edge recommendation Cabot Oil & Gas Corporation (COG), suggests the bears aren’t ready to give up a resistance level going back to December just yet.
I’m optimistic that OPEC and Russia can agree on a supply freeze, mindful of the risk of overflowing U.S. crude inventories, setting up a run in the XOP to its 200-day moving average near $35. That would be worth a 28% gain from here.
Caterpillar Inc. (CAT)
Shares of equipment maker CAT have been on the slide since crude oil and commodities started imploding in the summer of 2014. Waning raw material demand from China didn’t help. But for the first time since 2014, shares tested above their 200-day moving average in recent days in a breakout attempt above the November high.
Confirmation of the breakout, with a move back over $75, would setup a run at the 200-week moving average near $82 that hasn’t been touched since last summer. That would be worth more than a 14% gain from current levels.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
