Monday was another good day for U.S. stocks. The S&P 500 has been closing at all-time highs for the past week, but it was finally joined by the Dow Jones Industrial Average and the NASDAQ Composite. Solid earnings, optimism toward a trade deal, and lower interest rates all are fueling investor bullishness at the moment.
Of course, as we’ve noted in this space over the past several weeks, the gains haven’t necessarily been universal. Growth stocks have rallied of late, but many still sit below this summer’s highs. And even some big names aren’t yet at all-time highs, as is the market as a whole.
Tuesday’s big stock charts highlight three of those big names. All three look potentially set for a near-term move — and even with the optimism driving the broader market, those moves might not necessarily be in the direction investors hope.
Verizon Communications (VZ)
Admittedly, Verizon Communications (NYSE:VZ) is not far from all-time highs itself. But one of the key issues with the first of our three big stock charts is that “not far” seems to matter:
Click to EnlargeResistance has held repeatedly at $61, as seen in the near-term chart above. But this isn’t just a short-term problem: VZ stock faded from similar levels last November as well.
- Meanwhile, VZ stock is showing a bearish ascending triangle on the near-term chart. Admittedly, shares have a long way to fall to threaten a full reversal out of that range. But with VZ stock breaking through the 20-day moving average, the next support levels seem to be the 50DMA just below current levels and the 200DMA below $58.
- Fundamentally, there are some concerns. VZ stock is cheap, and a 4.1% dividend yield attracts income investors. But Q3 earnings weren’t enough to get the stock through resistance, and there’s an obvious catalyst problem until the Q4 report next year. Meanwhile, optimism toward rival AT&T (NYSE:T) has built amid an activist effort. It’s possible some VZ shareholders have swapped their shares for T stock, which still offers a higher dividend. VZ stock isn’t a short candidate, but the chart suggests that it’s unlikely to hit the same all-time highs as broad market indices have.
The hits keep on coming for McDonald’s (NYSE:MCD). MCD stock started turning south along with other restaurant names. Moving averages wound up providing resistance heading into last month’s Q3 earnings report, which led MCD stock down 5%. And now CEO Steve Easterbrook, who led an impressive turnaround since taking over in 2015, has left after violating the company’s code of conduct.
The bad news, as seen in the second of our three big stock charts, is that it can get worse for MCD stock:
Click to EnlargeAfter Monday’s 2.7% decline, there’s no sign of near-term support. Going back to the weekly chart, $182 served as resistance and support between November 2018 and March 2019. That could be the next key level, but if that support doesn’t hold there, the declines can continue.
- It’s tempting to chalk up the declines in MCD stock to a short-term focus on earnings and Easterbrook’s resignation. But, again, the sector has weakened. The chart at Starbucks (NASDAQ:SBUX) doesn’t look terribly different. The same is true for fellow quick-service play Yum! Brands (NYSE:YUM).
- Meanwhile, fundamentals don’t exactly suggest that MCD stock is a screaming buy. A 22x multiple to 2020 consensus earnings per share estimates isn’t necessarily cheap. The low-hanging fruit of the recent turnaround — adding all day breakfast, refranchising restaurants — has been harvested. It’s worth remembering that MCD stock traded sideways for years before Easterbrook took over. It wouldn’t be terribly surprising to see that trading repeat after his departure.
Alexion Pharmaceuticals (ALXN)
Over the long run, Alexion Pharmaceuticals (NASDAQ:ALXN) has been a disappointing investment. ALXN stock touched a five-year low late last year, and nearly re-tested those lows in recent months.
And there are some challenges here. Most notably, Alexion remains heavily reliant on Soliris. The drug treats atypical Hemolytic Uremic Syndrome and has a so-called “orphan drug” designation. It drove 86% of 2018 revenue, which raises worries about a potential patent cliff. A patent challenge by Amgen (NADSAQ:AMGN) added to those fears and led ALXN stock to sell off in August.
But there’s an interesting fundamental case here, while the third of our big stock charts shows a setup for a breakout:
- A double bottom has held at $95, which suggests bullishness. The bounce since has sent ALXN stock through moving averages. And it sets up a clear path to break out through the broadening descending wedge formation. If ALXN stock can clear $113 or so, the next step would be the 200DMA around $120.
- ALXN stock does look like a potential value trap, given its reliance on Soliris. But the company is having some success moving patients to follow-on drug Ultomiris. Those shifts can extend patent life and drive profit growth. Analysts see earnings rising nicely in 2020, and the average Street price target still sits at $150.
- Pharma and biotech plays obviously can be risky, and that’s true for ALXN as well. This still is a stock that’s down almost half from 2015 highs. But there’s a bullish setup here, and ALXN may benefit if investors start looking for value plays in a market with some concern about valuation. If the shift to Ultomiris continues, ALXN could be set up for a near-term breakout and a longer-term rally.
As of this writing, Vince Martin has no positions in any securities mentioned.