News of President-Elect Trump’s victory has stocks trading all over the map as investors and traders try to determine the correct rational move for the market. In a way, the election represents our own “Brexit” as voters have exclaimed their frustration with the “system” by electing someone that hasn’t been part of it.
The market’s reaction has been what you would expect as futures have been down more than 5% in overnight trading.
We’ll diverge from our usual look at the charts to review a few positions that should be on every traders’ list right now, as we watch the market potentially overreact to the election results. Today, we focus on iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB), VelocityShares Daily Inverse VIX Short Term ETN (NASDAQ:XIV) and Nvidia Corporation (NASDAQ:NVDA).
iShares Nasdaq Biotechnology Index (ETF) (IBB)
The biotechnology sector has been waiting for a Trump victory since it was suggested that his administration could be more favorable in the regulatory environment.
The Nasdaq Biotechnology Index just bounced from critical support at the $250-level earlier this week, which represents the bottom of the trading range for much of 2016. Each of the bounces in IBB from this level have resulted in rallies that average 15% during the year.
Currently, the initial target for IBB will be $280, a 10% move, which is where a considerable technical trendline resides. A break above this trendline will resume the rally to $300, another 8% higher.
For now, IBB appears to have more chart upside than risk, despite the nerves surrounding President-elect Trump’s victory.
VelocityShares Daily Inverse VIX Short Term ETN (XIV)
The CBOE Volatility Index (VIX) is set to pop this morning in reaction to the market’s nerves over the election results. The “fear index” made a similar move after the Brexit vote when it spiked above 25 before a precipitous decline.
Traders in the know realize that VIX is always likely to collapse after these fast spikes and are looking for ways to profit from the decline, which is where the VelocityShares Daily Inverse VIX Short Term ETN comes in.
This ETN moves inverse to the VIX, meaning that when the VIX declines 20% the XIV is likely to increase by a similar percentage. XIV is a great way to leverage investors’ fear into portfolios.
The chart for XIV shows that there will be a slingshot effect on the shares if we see them break below the $33 level on a VIX spike, as this level will move the ETN into a short-term oversold condition that would be supported by its volatility bands.
An upside target, per the XIV chart, resides around $40 to $42 when the VIX returns to more normal levels, which should happen after the Trump victory jitters wear off.
Nvidia Corporation (NVDA)
There’s room for a stock on the list today, and its one we’ve covered often. Nvidia, a semiconductor company, has been a relative strength leader all year as its market share and profitability grow. NVDA shares continue to move to new highs amid the strength.
Nvidia shares are trading lower by 1.3% in early morning trading and could see another dip towards their 20-day moving average, which is sitting at $68.73 and one of the technically supportive trendlines for NVDA stock.
In this case, Nvidia represents an opportunity for traders and investors to “buy the dip” in the markets by grabbing leadership names on even the slightest dip as they prepare to continue their rally after experiencing the “noise” of the market’s reaction to the elections.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
