Geopolitical headlines are still buzzing on Wall Street. This holds equity markets back from rallying based on their strong current fundamentals. This will be true as long as we have the threat of public skirmishes between the United States and China. Add to that threat the renewed efforts for impeaching President Donald Trump, and this makes for a difficult trading environment. But this doesn’t mean that there aren’t any stocks to buy now.
In fact today I focus on three stocks that investors on Wall Street hate to love or love to hate, depending on the direction of their momentum. Netflix (NASDAQ:NFLX), International Business Machines (NYSE:IBM), and Nvidia (NASDAQ:NVDA) are three highly emotional stocks that elicit fierce discussions among bulls and bears. I have traded all three in the past — but never based on how I feel about them. For example, I have shorted NVDA stock near its highs when I loved the company. Conversely I went long IBM stock in spite of my extreme dislike of its management. And this week I traded Netflix purely based on technical breakout levels — not on the extremely negative rhetoric that is currently in the news.
Trading with a plan is the right way to approach these momentum stocks. This means that aside from the fundamental picture, we need to do homework on levels that matter. Most ticks on charts are immaterial unless they happen at significant levels.
Stocks to Buy: International Business Machines (IBM)
For the first time in years I am excited about the IBM stock price action. It has finally showed me relative strength, even during the breakout of headlines that shook the whole market. So maybe investors are finally ready to commit to the IBM rally back up to $160 per share. It won’t be a straight shot to the moon, but there are positive and encouraging signs.
If the bulls are able to break out from $145, they can then target $152.50 where they will hit another set of resistance. But after a brief tussle with it, IBM stock should continue to $160 or higher. Rest assured that I am not a perma-bull so this is an unbiased opinion strictly based on charts. I still believe that they need new management since this team has been underwhelming for a decade. All other major technology companies have already made the turn towards new business models, except IBM. So onus is on the CEO to deliver tangible results on the company’s next earnings calls.
This breakout started from the neckline at $137.50 per share and my thesis would be the extension from it. So clearly the IBM bulls are in charge of the stock and the dips will be buying opportunities. I would hold the position for as long as this is true. I would set stop-loss triggers, but not as long as IBM stock is above the $138 zone.
Netflix (NFLX)
NFLX stock has been in the dog house lately. The haters have taken control of the rhetoric. This is on the heels of competition coming to market. The ace that Netflix had was its first-mover advantage. But that is also its problem now. Its competition has deep pockets. Apple (NASDAQ:AAPL) and Disney (NYSE:DIS) to name two are coming to market soon with their streaming services and NFLX management would be fools to ignore that.
Nevertheless, NFLX still has a giant advantage with its content. It spends insane amounts to offer excellent content. Disney can compete on that front since it already has a giant global library of content. But AAPL will have to make a lot of headway there. This is all to say that NFLX will suffer from competition, but it’s not dead yet.
The opportunity now is that sentiment has swung too far negative and the swing back has already begun. This week the NFLX stock triggered long and the trade is on from the $261 zone with a target near $273 per share. But earnings are near and the onus is on management to deliver great global growth metrics. If not, haters will try to bring new lows. CEO Reed Hastings will have a tough sell in a few weeks.
Nvidia (NVDA)
NVDA stock is a fallen angel. The experts all loved it at $290 per share, and then they didn’t. The stock fell from grace and took a long time to base. Finally, NVDA has set a healthy higher-low trend going into its next earnings event. This is when onus falls on management to prove that the recover rally is legit and that the results are good. Otherwise, investors will bring it back down to earth once more.
But first, Nvidia stock will have to survive the Micron (NASDAQ:MU) earnings this week. The semiconductor sector trades in unison. So NVDA investors better pay attention to how MU stock acts on Friday morning when it opens after the earnings.
If NVDA stock rises above $189 per share the bulls can then target the $225 area. That was a ledge from last year so it will offer resistance here. But it is imperative that the stock stays above $170 so that buyers remain in control. This would also maintain the higher-low trend while attacking breakout necklines. Conversely, losing $147 per share would open up a whole new can of bearish worms.
Love them or hate them, IBM, NFLX and NVDA stocks currently offer great trading opportunities and there are plenty of profits to be had. The only hurdle for investors is the ability to check their emotions at the doorstep before placing trades. Since we still have headline threats, traders should use tight stops especially with such momentum stocks. Also, I never risk more than I am willing to lose.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.
