The current sentiment on Wall Street is completely different than this time last year. Back then, the Federal Reserve had mistakenly spooked investors into thinking they would continue their rate hike cycle in spite of softening economies. Things are much different in 2019. Case in point: Yesterday the Fed cut rates for the third time. This gives the equity bulls an advantage — which means there are some breakout stocks to buy into year-end. Today we examine CVS (NYSE:CVS), AbbVie (NYSE:ABBV) and Square (NYSE:SQ).
All three stocks are lagging so they are not intuitively stocks to chase. But they each have reasons that are compelling enough to watch for triggers.
Breakout Stocks to Buy: CVS (CVS)
CVS stock has had a difficult 12 months. In fact, since it hit its $113 highs in August 2015, it has been sliding for four years. It finally seems to have bottomed in May of this year. Since then, the stock has set higher lows and higher highs until it hit the $65 per share neckline. This is a natural resistance line since it was a ledge at least two times this year, once in February and a second time in September.
But finally, last week the CVS stock bulls broke above the resistance and now are pricing in a bullish pattern with a target near $75 per share. There will be strong resistance at $70 since that too was a failure point at least twice this year. If the markets continue their breakout into record territory, then CVS should also continue its recovery rally.
The company reports earnings next week, and that will bring about a guessing game. It would be best to lock in the profits ahead of earnings, or else this trade could turn into an investment.
AbbVie (ABBV)
Similarly to CVS, ABBV stock is also facing the opportunity of a bullish pattern breakout. If the buyers can overcome the resistance around $80 per share then they could invite more momentum for a $15 run. It won’t be easy since the area above current levels is a prior ledge and a well-consolidated zone. This usually means that the fight will be hard as buyers come to it from below.
There are reasons to be skeptical despite the enticing trigger line. So far this year ABBV stock is down 14% when the S&P 500 just set a new all-time high. Clearly, Wall Street has issues with the chart so far. But it is best to set the alerts on the charts then act once the triggers happen. Only when there is confirmation that the breakout is afoot is this trade valid — if traders fail to wait for confirmation, they’ll be stuck hoping things go their way. This would be more hopium than actual strategy.
To add uncertainty to this setup is the fact that ABBV’s management reports earnings on Nov. 1. The short-term reactions to reports are binary. Long term, the fundamentals will matter, but for the short term it is more about the headline and the technicals on the chart. As long as the price is above $74 per share, the bulls remain in control of this ascending trend.
Square (SQ)
SQ stock has lagged Visa (NYSE:V) and Mastercard (NYSE:MA) all year. But SQ used to be the fast mover of the bunch. The financial technology sector is still as hot as ever. The global transition into electronic transactions is still in its infancy. So companies like SQ have a long way to go. Yet, the stock so far has failed to recover its highs.
Year-to-date, SQ stock is only up 10% whereas Visa and Mastercard are up over four times more. Clearly there is unmet potential in SQ. But having it linger this low for so long establishes a base. Including the Christmas correction, SQ stock has held well above the $56 per share zone. Moreover, the bulls have been in charge since the September lows setting higher-lows and knocking on a neckline. If the buyers can break out from $64.75 they could trigger a bullish pattern to target a $6 run. From there, SQ would be close enough to stir up thoughts of filling the gap to $80 per share.
Earnings are coming soon so this adds another layer of guessing. The short-term reaction will depend on expectations. In the long run, unless management flubs in a massive way, SQ stock will rise along with the markets.
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.
