Whether you’re on the left or right side of the aisle, a trade war in tech stocks has left opportunities for investors in Facebook (NASDAQ:FB), Momo (NASDAQ:MOMO), Netflix (NASDAQ:NFLX) and iQiyi (NASDAQ:IQ). Any number of stocks has felt pain recently — but some are ready for a turnaround while others may have more pain ahead.
But when the price charts offer up a couple technically compelling pairs trades pitting China versus U.S. and wannabees versus industry giants — it’s time to take action regardless of tomorrow’s news.
Here are two tech stocks you should buy, and two you won’t want directly in your portfolio.
Tech Stocks to Buy: Facebook (FB)
Not that I thought I’d never see the day, but the time to consider social media giant Facebook as a long position has arrived. That’s the thing about trading tech stocks though; the moves can happen fast. Investors have to keep an open mind and stay prepared for those times when the technical evidence to move from bear to bull enters the picture.
FB stock has corrected roughly 36% from this past summer’s all-time-high. The decline is a tad more than what’s considered par for the course in a bullish market environment. But the modest overshoot shouldn’t concern traders too much given the broader markets have forged their own corrective moves during this same period.
Also supporting the technical view that Facebook is a stock to buy, the oversold corrective move has worked its way into a weekly doji decision candle. The pattern lines up nicely with this spring’s V-bottom and price levels from about a year and a half ago when this tech stock began to shift into overdrive.
All told, technically speaking there’s a lot more to like about FB stock’s prospects for higher prices than at any other point in the past few months. For bullish traders who are agreeable, I’d recommend waiting on a move through $156.40.
Waiting for this confirmation in FB stock will confirm the weekly chart’s doji candlestick as a bullish turning point, while not giving away too much upside if indeed an intermediate low is in place. For money management, I’d suggest initially using a 8% money stop to protect against larger losses in this tech stock and prior to an outright failure.
Tech Stocks to Short: Momo (MOMO)
Momo is China’s answer to Facebook, but this isn’t a stock to buy right now. Don’t get me wrong. I have a fully hedged long position and believe there’s huge growth appeal in this tech stock. But the provided weekly chart recommends not being overly friendly with MOMO for the time being.
Technically, MOMO stock’s questionably larger 46% correction has broken below a couple key support lines. It’s concerning price action. As well, the weakness follows a failed breakout from a rather large and bullish corrective cup pattern. The fact that this tech stock has performed so miserably following so much technical work is another strike against MOMO.
Looking a bit closer at the price action, I’d go so far as to offer this tech stock as a short, as MOMO shares move towards resistance in a bearish flag pattern. Be warned though, earnings for MOMO stock and a notoriously volatile trader are later this month.
I personally wouldn’t hold an unhedged MOMO stock position, either long or short, through the report. Still, with just over three weeks until the quarterly results are announced, shorting MOMO’s current downtrend into resistance and a good spot for its next lower high to develop looks interesting.
If traders do like this proffered bearish scenario, I’d recommend a smaller lot size and allow shares about 14% of wiggle room through $41 before “un-liking” this short under false pretenses and fake news of a bull market.
Tech Stocks to Buy: Netflix (NFLX)
Much like Facebook, in recent weeks I’ve been a good deal more bearish on NFLX stock’s prospects. In a fast operating environment where algorithms run the show, being open to changing market conditions and receptive to a bullish position needs to be appreciated.
Technically speaking, Netflix shares are also a lot like FB stock. The weekly chart shows a bullish trend which turned a good deal more aggressive in its price slope during the first-half of 2018. As well, following a handful of months removed from hitting fresh highs, shares of this tech stock have corrected by an eerily similar 36%.
Digging in a bit deeper, NFLX stock has a couple other technical developments to support a playable bottom and perhaps even an intermediate low. This tech stock has formed a lower-low, bullish hammer candlestick centered on a test of the 38% retracement level. At the same time, the weekly stochastics is signaling a bullish divergence pattern from oversold territory.
For traders subscribing to this tech stock’s bullish big picture, a move above $322 and through the high of the hammer formation looks like the way to enter NFLX. For managing the position a money stop of 11% which respects increased volatility and gives the nod of “best technical picture” to the bears below $288 is how I would buy this tech stock without marrying it during less-agreeable times.
Tech Stocks to Short: iQiyi (IQ)
IQ stock is a spin-off from Baidu (NASDAQ:BIDU) and China’s answer to Netflix. Sometimes though you simply have to call a spade a spade. In this instance, worse-than-expected recent losses and a downtrend on the price chart with no nearby technical support to speak of — offers bearish trend traders a compelling tech stock to short.
With iQiyi shares having failed to hold, then moving back through the 76% Fibonacci level, bears have a nice technical spot to set a stop-loss on a short position. On the downside, if the downtrend in this tech stock continues to strengthen, the next logical test is IQ’s all-time low of $15.30.
The relationship of risk versus reward for this short on IQ stock favors the latter by three-fold. And while the trade war in this tech stock could always play out differently than forecast, regardless of your politics, this looks like one to help make your portfolio great again!
Investment accounts under Christopher Tyler’s management own Momo (MOMO) and its derivatives, but do not own any other securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
