Now up nine weeks in a row, U.S. stocks began Monday with another surge. What could the catalyst be? Of course it’s more positive trade talk. However, there are certainly a growing number of traders looking to pare down risk amid this massive rally. Let’s look at some top stock trades to see what may be developing.
Top Stock Trades for Tomorrow #1: S&P 500 ETF
The SPDR S&P 500 ETF (NYSEARCA:SPY) has been on an absolute tear, jumping 19% in the past two months. I get it, though. The Fed is back on the “bulls’ team” with interest rates on hold, while the trade war is seeing progress. Still, we have to be prepared for an eventually phase of consolidating and/or pulling back.
The SPY gapped right over the $278 area, a triple-top in October, November and December. This was my initial target once we began to rally. Ideally, we would see this level hold as support, but that essentially means that the SPY can’t pullback from current levels — only sideways consolidation would allow for that. However, this level could play a pullback role if we see a further rally in the SPY.
Instead, there’s a little bit more wiggle room between $275 and $280, along with uptrend support and the 21-day moving average. Anything in or above this range still has me feeling pretty bullish on the SPY. For now, that also means over the 200-day moving average as well.
Below the 21-day and my SPY confidence will take a hit. Same with being below the 200-day. Bulls don’t want to see that.
Top Stock Trades for Tomorrow #2: Amazon
This one has been surprisingly sleepy. It doesn’t take a genius to realize that the market has been a stud since Christmas and that enterprise software and cloud stocks have been big-time outperformers. That is, except for Amazon (NASDAQ:AMZN).
Admittedly, shares are up meaningfully from the bottom, climbing just over 20%. But for the year, it’s been a mostly sideways affair, with AMZN chopping between $1,600 and $1,700. The 50-day has been support and the 100-day has been resistance.
I don’t like that the chart is squeezing it lower, but it sets investors up for a great “go with the flow” trade. Below the 50-day/$1,600 level and traders can sell Amazon. Above the 100-day/$1650 level and traders can buy the breakout. On a rally, look to see if AMZN can get above the 200-day and hit $1,750.
Top Stock Trades for Tomorrow #3: Nio
Jumping after a 60 Minutes showing, Nio (NASDAQ:NIO) is up almost 10% on Monday after closing right at key resistance near $8.15 on Friday. Now I want to see if this name can push through $9, a level that kept NIO from pressing higher back in September.
If Nio is able to push through $9 with authority, this becomes investors new stop-loss level and the stock’s new support level. If it acts as resistance, let’s see if we can snag NIO down near $8.50 or even $8 again. The latter should certainly be support at this point, remember that.
Top Stock Trades for Tomorrow #4: Danaher
Danaher (NYSE:DHR) will buy General Electric’s (NYSE:GE) biopharma unit $23.4 billion. The move has both stocks higher by about 8% on Monday, with Danaher exploding over range resistance.
So now what?
The obvious is to watch for a possible pullback in DHR, but the levels are harder to calculate. In this case, we can extend a couple of Fibonacci lines. Not ironically, Monday’s highs come right at the 161.8% Fib extension based on the 2019 trading range. The 138.2% extension near $120 could act act as support over the ensuing days.
However, the 2019 range is pretty short, so if we do the same thing vs. the 52 range, we end up with a slightly larger range. In that case, the 138.2% level comes into play near $121.90, while the 161.8% extension is still up near $127. Investors can decide which of these levels to use, if any, based on their risk tolerance.
Top Stock Trades for Tomorrow #5: Cisco
This large cap giant broke out a little more than a week ago on strong earnings and hasn’t look back. Cisco Systems (NASDAQ:CSCO) is reaching overbought territory though and could use some rest. Short-term bulls may consider using $50 as their stop, the breakout point from last week.
Above that level and the 8-day moving average though, and it’s hard to be too bearish on CSCO stock, however overbought it may be. Let’s see how this one trades over the next few days and whether it gains or loses steam.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AMZN.
