Stocks continue to become even more bifurcated as we head into September, as investors are breaking ranks with the indices to find opportunities at the stock and sector level. This has caused our tracking of the S&P 500 correlation to continue to drop, confirming that it’s an office stock pickers market.
This development means that it is more important to keep a daily eye on the technical developments of stocks to determine long and short opportunities. Today’s technical scan of the markets identifies Mylan NV (NASDAQ:MYL), Netflix, Inc. (NASDAQ:NFLX) and Fitbit Inc (NYSE:FIT) as three short-term tradable bulls that investors should be eyeing.
Mylan NV (MYL)
Since the Epipen situation surfaced last week, Mylan has been made out to be an evil profiteer when in fact it is the FDA’s approval process that often causes companies like Mylan to charge more for their drugs in order to recoup their development costs and generate profits.
Mylan shares have spent the last week in a volatile consolidation that has the stock drawing what should be a tradable bottom at the $42 level.
Mylan shares have now spent the last six trading days edging closer to a break below the $42 level, but intraday volume changes show that there has been a monumental swing between buying activity and selling throughout each of these days, with the majority of the buying opportunity coming in the afternoon when the traders normally take charge of the tape.
The consolidation has resulted in a short-term oversold condition on Mylan stock as the RSI is now indicating a more oversold condition than it had in May, when the stock bottomed at $38 before rallying to $45.
Mylan shares are still being drug through the mud by the media as the stock is an easy target during a loser news cycle (they’re tiring of talking about the elections). We expect this “noise” to lift and for the stock to begin trading off of the technicals, which are short-term bullish.
Finally, we pointed-out last week that Mylan shares are trading from support provided by their 50-month moving average. This extremely long trendline is rarely used, but it is clear in Mylan’s case that the trend is coming into play. Out technicals still suggest a rally back to $50.
Netflix, Inc. (NASDAQ:NFLX)
New technology stocks continue to struggle in this market as traders are clearly favoring “old school” tech stocks that have a better track record and in most cases pay dividends. But this doesn’t mean that Netflix and others can’t present trading opportunities.
Netflix shares have been somewhat quietly mustering up a rally as the shares have taken a relative strength leadership role against the S&P 500 over the last month. Shares are trading almost 9% higher for the month of August.
The recent rally is building what may be an intermediate-term run in the online streaming entertainment stocks. A better-than-expected earnings report kicked off the recent rally, which recently transitioned the stock’s 50-day moving average from a neutral trend to bullish. This means there is a 2:1 chance the stock will post a higher close each day the 50-day is trending higher.
In addition to moving into an intermediate-term bullish trend, Netflix is preparing to break the pattern of lower highs and lower lows as a move above $99 will challenge the July highs, and set course towards $105. The fact that the stock’s RSI reading has yet to signal overbought conditions is supportive of this drive to a new relative term high.
Netflix shares have moved back into the regression channel trendlines that date back one year to when the stock began its transition from long-term bull to bear. This is important as it suggests that the move back into the “normal” range of price distribution will help investors become more attracted to the shares and increase buying opportunity.
The technical picture continues to improve for Netflix shares. While the stock is not in the same thoroughbred status that it had achieved through 2015, it has been going through the technical healing process that should begin to attract buyers from both technical and fundamental camps. We maintain a $120 price target on the shares.
Fitbit Inc (NYSE:FIT)
What had been one of our favorite stocks to beat up on has turned into a bullishly driven technical trade. Since posting a turnaround in July, Fitbit shares have developed a strong intermediate-term bull run moving from $12 to their current $15.37, and the run isn’t over according to the chart.
Fitbit shares saw a bullish 20-/50-day crossover two weeks ago, a signal that averages returns better than three times the average bullish performance for Fitbit stock. These returns usually play out over a three-month period, so there’s time to jump on this bullish train still.
The rally has built momentum in Fitbit stocks, momentum that will help maintain a slow, steady rally that is also likely to avoid pressing Fitbit shares into a short-term overbought signal.
What is most interesting to us from the chart is the recent contraction in the Bollinger Bands as the stock has gone from being more volatile than the market in June and July to being a steady trender through August. The contraction in the Bollinger Bands suggests that there is a volatility-based move on the horizon for Fitbit, and given the current trend, it is likely to be volatility that favors the bears if the stock breaks above $16.
The chart suggests that a break above $16 will propel Fitbit shares to the $18 level at a fast and furious speed. On the downside, support is in place at the $15 and $14.25 levels.
For now, Fitbit’s technical upside potential far outweighs its downside.
As of this writing, the Johnson Research Group did not hold a position in any of the aforementioned securities.
