The markets started off higher on Tuesday, following Monday’s rally. However, stocks struggled to follow through, with the morning rally fading to losses in the afternoon. Here are our top stock trades going into mid-week.
Top Stock Trades for Tomorrow #1: Chipotle
When the markets get volatile and the selling becomes rampant, I like to look for names showing relative strength. That is, stocks that are strong relative to the overall market’s performance. Among the list of relative strength winners is Chipotle Mexican Grill (NYSE:CMG).
The stock broke out to new highs on Tuesday, bursting over the $825 level and hitting $850 on the day. I’m not necessarily saying that CMG is a screaming buy, only that it’s not a screaming short.
Simply put, we do not short stocks that are in this strong of an uptrend and/or are showing this much relative strength. For now, the dips continue to get bought in CMG and new highs are going in the books. While the market has struggled in August, CMG is up 6.5%.
Top Stock Trades for Tomorrow #2: Starbucks
Another name showing relative strength? Starbucks (NASDAQ:SBUX). However, that’s been going on for about a year now.
Shares surged higher in July on better-than-expected earnings results and now continue to linger in this mid-$90s range.
$97 continues to act as resistance, while SBUX keeps putting in a series of higher lows. Should uptrend support break and the 20-day moving average give way, SBUX may test the 50-day moving average. It could also fill the gap down toward $91.
Over resistance puts $100 on the table.
Top Stock Trades for Tomorrow #3: Johnson & Johnson
Johnson & Johnson (NYSE:JNJ) is rallying on Tuesday, but is not sporting the 4%+ gains it was after the close on Monday. The company was ordered to pay a fine of more than $500 million in an opioid ruling, although J&J plans to appeal.
Shares were rallying with the news now out of the way, but it’s having trouble sustaining those gains. Part of that is due to the overall market, but the charts could be causing the rest of the headaches.
The $127 to $128 level held as support, but shares could not sustain above short-term range resistance at $132.
While not pictured, I would like to see JNJ close over the $131 to $131.50 area, with the 10-week and 100-week moving averages trading in this area. If it can, and if JNJ can clear $132, it puts the 50-day and 200-day moving averages on the table.
Above that and $138 is possible. If $127 gives way as support, $122.50 and $117.50 could be next.
Top Stock Trades for Tomorrow #4: Shopify
We highlighted its strength the other day and Shopify (NASDAQ:SHOP) put together another impressive session on Tuesday, hitting new highs over $400.
While it will anger a lot of bears, this one could still have upside. It’s not overbought in the short term and is not even close to what has been channel resistance. Like CMG, Shopify may not be a screaming buy at this point, but it’s one to keep an eye on.
I would love a dip down to $340 in SHOP.
Top Stock Trades for Tomorrow #5: Costco
Costco Wholesale (NASDAQ:COST) is one of the few retailers that keeps on churning. The company opened its first store in China and had to close it early because of how many customers showed up.
What a great problem to have.
It sent the stock bursting over $282 resistance and to new highs. Like Shopify, it has a ways to go before hitting channel resistance and is not yet overbought. Whether the overall market keeps a lid on future momentum is hard to say, though.
Look to see if COST can continue to gravitate higher. If it pulls back, see if $282 can hold as support. Below and it may test uptrend support and/or the 50-day moving average.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long JNJ and SHOP.
