IQ is Bouncing Between $24 and $28

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This morning, I am recommending a bullish trade on iQIYI, Inc. (NASDAQ:IQ), the China-based online entertainment services provider.

Last week, I mentioned my two main trading rules: don’t fight the Fed, and don’t fight the tape, or the action in the market. The action in the market last week was more bullish than my indicators showed, and I wanted to go with the flow.

The market did pull back slightly last Friday, so if we are going to go with a bullish trade it should be cheap and in a strong sector.

Technology had been leading the market higher. Stocks like Microsoft (NASDAQ:MSFT) and Cisco Systems (NASDAQ:CSCO) have been setting new 52-week highs after bouncing back from their 2018 declines.

While none of the stocks mentioned above are official recommendations for our portfolio, I do think they are likely to lead the market to the upside from here. IQ has been growing since the start of 2019, and if it follows the rest of the sector, we can profit off a bullish trade.

55% Year-Over-Year Growth

IQ’s fourth quarter earnings were strong, and the stock has been rising since the beginning of the year. The company showed growth of 55% year-over-year, and it reported lower losses per share than expected.

I still remain skeptical of the health of China’s economy long term, and a dip in economic performance would hurt IQ. But this is a short term trade, and the technical picture looks like it is in our favor.

Bouncing Between $24.50 and $28

IQ jumped after its latest earnings report, but it couldn’t stay above $28. That level has acted as resistance twice in the past month, and I don’t think IQ will rise above it.

Daily Chart of iQIYI, Inc. (IQ) — Chart Source: TradingView

 

Right now, the stock is sitting at around the $24 level, and it could find a bottom. If that support level holds, IQ might make its way back up to resistance at $28, and we can take a profit on that rally.

Buy to open the iQIYI, Inc. (IQ) May 17th $27.50 Calls (IQ190517C00027500) at $1.80 or lower.

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