Wall Street is trying to break a two week losing streak. And whether it is successful or not likely rests on Federal Reserve Chairman Powell speaking tomorrow. His words have recently moved markets violently. Regardless, the effects should be short term and eventually stocks will trade on their own merits. So we seek the top stock trades for Friday separately from the fed announcement.
Top Stock Trades for Tomorrow No. 1: Splunk (SPLK)
The experts on Wall Street got busy quickly with their opinions on Splunk stock Thursday morning. It caught at least two downgrades, but some will defend it. I usually ignore what analysts think as I find it best to do my own homework to form an honest thesis with no hidden agendas.
SPLK stock is not cheap, but since it is a growth stock, that fact matters very little. In fact, they are supposed to spend a lot so they can grow a lot. The earnings report was strong as they clobbered expectations and raised guidance. They did announce a $1 billion acquisition so that could have scared a few opinions.
I bet that the negative reaction down 10% is wrong. This is a dip that I’d buy. If I am long SPLK I don’t give up on them now just because of a knee-jerk reaction to earnings headlines. SPLK stock will continue to prosper as they transition into the subscription business model.
So far, management with the leadership of CEO Doug Murray has performed well. There is no reason to start assuming this will change. SPLK stock came into the earnings up more than the S&P 500 so it’s not a slouch. This time, traders are acting incorrectly and investors need to step into it on the dip.
Top Stock Trades for Tomorrow No. 2: Ford (F)
Ford seems to be in disarray. While this statement may be too harsh, this is the impression I get from watching the pain in F stock. Fundamentally, it can get cheaper because it still sells at a premium to General Motors (NYSE:GM). Not that GM is in much better strategical shape. It is interesting to note that F stock is outperforming GM this year but that’s not the case longer term.
Nevertheless, I bet there will be a big move in F stock. This is in spite of its Thursday headline against President Donald Trump over the California legislation.
The opportunity in Ford stock comes from its high yield. Rarely does Wall Street allow for a high-profile company to deliver 6.6% yield. So either Ford will need to cut the dividend or the stock price has to rise. So this is a position I would hold for the long term in any case, but this dividend situation could render F a short-term win.
Top Stock Trades for Tomorrow No. 3: Tesla (TSLA)
Thursday morning rumors were that Volkswagen had interest in buying a stake in TSLA. The stock spiked 3% on the headline. These were vague notions with nothing specific so not likely true. But this is still a trading opportunity. The fact that the buyout subject is in the news places a bid below the stock. This makes it harder to short it, which gives TSLA stock bulls a temporary advantage.
For those traders with a strong stomach they can buy TSLA stock and hope for the best. I am not that brave so I would prefer to use options to trade it. For example I can sell the March 2020 $135 put and collect about $8 to open. I don’t even need a rally to win. In fact, the stock can fall almost 40% from here and I would still have gains. IF TSLA stock falls below that then I break even at $128 and accrue losses from thereon down.
I only sell naked puts when I can own the shares, else I would use sell put spreads instead. My logic is simple; the company has great potential but TSLA stock has been crippled by Elon Musk shenanigans. So if the stock falls low enough, it gets cheap enough that someone will buy it. Then Thursday’s rumors would then be more credible.
Top Stock Trades for Tomorrow No. 4: Ulta (ULTA)
UTLA stock has been on my watchlist all week. It showed a good potential setup going into earnings. This is a great retail success story when the most of the sector is still reeling from the Amazon (NASDAQ:AMZN) effect.
ULTA still carries advantages over typical retail in the sense that they control their inventory and have a loyal clientele. Also since the pool of retail success stories is shallow, this places demand on the successful ones like ULTA stock, Walmart (NYSE:WMT) and Nike (NYSE:NKE).
Technically, I like the chart setup. ULTA stock bulls have already pushed above $332. If they can go above $335 then the upside target should be closer to $350 per share. There will be resistance especially at $348.50 so it won’t be easy. Earnings are coming soon so it could provide the burst necessary to do it. This is a stock I can hold into this breakout especially if my time frame not strictly short term. There is a bearish scenario that could occur short term but I bet that the ULTA stock fans will defend it.
Top Stock Trades for Tomorrow No. 5: Dick’s (DKS)
DKS reported a strong earnings report on Thursday. They beat metrics and raise guidance. Experts called it a breakout quarter. Indeed, the DKS stock spiked 13% on the headline. This is not a run to chase just yet. In spite of what the meme says, markets do have memory.
Coincidentally, the DKS stock spiked to $38 which is inside a prior failure zone. Usually these are resistance at least on the first pass. The bulls rarely are able to slice through pivot zones like butter. They need more than one attempt to rise above. This is not the same as saying short DKS stock. Caution is warranted here.
In this case, DKS stock failed at exactly a level it has failed at at least five times this year. Each time was followed by more red. So in spite of the optimism from the report, the stock price action is questionable from here. Onus is on the bulls to prove that this time they can consolidate well and push past $38 then $39.20 per share. Until then I wait for confirmation that floor levels below are solid enough and that the neckline above is breakable.