The first real trading day of September — the one with everyone back from the beach — will kick off today with futures trading slightly higher. But we’re still looking at the seasonality data with a good deal of confidence. That’s because a number of indicators suggest a pullback is all but imminent.
The market’s short-term outlook has us looking at stocks that should see declines in September, meaning we’re looking to either sell existing positions or short (maybe using options) these likely decliners. Today’s list of technical troublemakers includes Netflix, Inc. (NASDAQ:NFLX) and AbbVie Inc (NYSE:ABBV). Intel Corporation (NASDAQ:INTC), however, looks promising here.
Intel Corporation (INTC)
We’ve mentioned that old-school tech companies like Microsoft Corporation (NASDAQ:MSFT), Cisco Systems, Inc. (NASDAQ:CSCO) and Intel have once again become attractive. The positive effect is great, as investors still have their eyes on companies like Facebook Inc (NASDAQ:FB) and GoPro Inc (NASDAQ:GPRO), completely ignoring the profit potential of these real market performers.
Their mistake.
An ongoing refresh of products using semiconductor technology from Intel has INTC stock leading the market higher as it breaks toward new multiyear highs. As of now, a break above $37.90 would register Intel’s highest price since 2000 — something the market won’t be able to ignore.
As of last week, Intel shares were reaching into technically overbought territory as the stock’s RSI reading moved above 70. Normally, we don’t like holding a stock that hits these levels as it indicates that profit-taking is likely to arise. But another development in INTC has us hanging on.
Intel stock also is pressing above its top Bollinger Band. Historically, a break above this band (not to be confused with trading just below) usually causes a surge of buying pressure as traders see the stock’s move accelerate. This often results in what we refer to as a “parabolic move.” INTC is set up for such a move.
Keep in mind that a break above this band would put the stock into new high territory, which will grab headlines and warrant even more buying. For now, this development has Intel on our short list of companies with higher price targets.
Watch for a volatile bullish move toward $40 for the old-school chip leader.
Netflix, Inc. (NFLX)
NFLX has turned into one of Wall Street’s less-liked stocks thanks to all of the competition in its space. Sure, this is a fair concern, but no competitor operates with the reach and growth that Netflix does. So it’s only a matter of time before this value gets picked up again.
For now, the charts suggest that Netflix stock is stuck in a consolidation pattern that is likely to lead to lower prices. As of last week, shares started stalling out again as they faced overhead resistance from their 200-day trendline. More urgently, NFLX is now being pressed lower by its tightening Bollinger Band, adding pressure to the $98.50 level.
Failure for Netflix to break above $98.50 over the next few trading days should prompt technical selling pressure as the momentum tide turns. Netflix’s first line of technical support is at $94 from its 50-day moving average, but this trendline has been very ineffective in acting as trading support or resistance. Instead, our chart analysis is targeting the $88 level as a likely target for any decline. This level would also serve as a potential buying level for many technicians watching NFLX stock.
AbbVie Inc (ABBV)
The biotechnology sector has been coming back with a vengeance after the group was technically oversold on fears of new regulatory control becoming a campaign platform. Well, the recent Mylan NV (NASDAQ:MYL) story may have done exactly that. Same with the Apple Inc. (NASDAQ:AAPL) story.
Both affect AbbVie.
ABBV shares have spent the past two weeks on a low-volatility decline as traders have pulled back from the relative strength-leading pharma company. The pullback now has the stock trading below its 50-day MA for the first time since June.
Technical traders will want to watch the development. The currently declining 20-day, if it crosses below the 50-day (which is likely to happen this week), would indicate another round of selling in the works. Our historical tests show that Abbvie would be 67% likely to see a 8% decline in shares prices on a cross-under like this.
ABBV stock currently is coming off a short-term technically oversold reading in the RSI, so we should see a little buying early in the week. But any market weakness will be amplified in a move lower for AbbVie.
Watch the $63.50 level as a key tipping point. A break below will target a move back to their 200-day support, which is currently idle at just under $60. This is where ABBV would become attractive to us.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
