The investor sentiment this year is a mirror image of that from this time last year. Wall Street is showing almost no fear as the CBOE Volatility Index has collapsed. Markets are setting new all-time highs after another with seemingly no letup in sight. But even up here, there still are stocks on the rise like Shopify (NYSE:SHOP), Facebook (NASDAQ:FB) and Roku (NASDAQ:ROKU).
This bullishness is happening in spite of still having all the risks from last year but one. The U.S. Federal Reserve is now on the bullish side of the fence and that has been the difference that it took. Investors are brave when they know that the Fed net is out.
This is an environment where rallies tend to extend beyond expectations. Today we look at three situations where that could be the case. SHOP, FB and ROKU are notable stocks on the rise. Each has a habit of surprising traders with how fast and long they can move.
Stocks on the Rise: Shopify (SHOP)
For a long while this year, SHOP stock seemingly could do no wrong. It had a rocket-ship trajectory until the middle of August. It lost its footing then and corrected 40% in two months from that high. The bulls are still trying to snap out of it. They double bounced off the $280 support. This is good as long as they don’t fail at it a third time. Because if that happens, the sellers will press it to test $240 per share.
But today’s note is to share the potential upside of Shopify stock. This solid November bounce is a legitimate challenge to the resistance zone. Technically, SHOP could be in a breakout targeting $340 or higher. That’s where the next biggest resistance zone lies. It was a massive ledge from Oct. 15. It’s up to the bulls to breach it. And if they do, they could even set their sights on the $370 level in SHOP.
For now, the buyers of Shopify stock have the benefit of the market-wide tailwind. So they will need it to continue so that they continue their bullish efforts. If this is a trade opportunity, then investors need to set the proper stop loss triggers. The $300 per share level is an important one to hold both from the psychological and the technical perspectives.
Facebook (FB)
Facebook is the poster child of the privacy fears. But these are blown out of proportion since the Cambridge Analytica incident. Eventually these will abate, and besides, most of FB’s users are outside the U.S. where that issue is not as sensitive. Nevertheless, politicians have not yet let go of that bone and their threats of penalties and antitrust litigation have shackled FB stock for months.
This week, the stock is trying once more to breakout from a prior failure level. While this opportunity is tactical because of a specific setup, owning FB stock for the long term is still a viable strategy. Facebook is now trying to break out of where it failed miserable in early August. Back then it fell from $198 per share to eventually bottom at $173. Then FB again, failed on Oct. 31 to repair the damage done in August at $198.
However, Facebook is trying to punch through again. If the bulls are successful, then they should overshoot $18 to $20 higher. The pattern has become like a cup and handle, where the buyers have the opportunity to overwhelm the sellers if they breach. This time, Facebook stock has the tail wind of a rising stock market. the lack of fear on Wall Street opens that door a little wider than normal for FB.
Roku (ROKU)
ROKU stock has been a monster in 2019. It is up almost 400% despite the recent sharp correction off its earnings report. But the stock found footing against all odds and has rallied back and more. And therein lies the opportunity in the “more” part.
This rally off the earnings dip has exceeded the $151 per share neckline from which they fell. Usually when those bullish patterns materialize they invite more momentum buyers. But the bulls’ job now is to hold it. So for this breakout to reach its potential to set a new high, it is imperative that the bulls hold at or above $151 per share. Otherwise, they might lose the advantage of the technical breakout lifting the ROKU stock price.
This is definitely a tactical trade setup and has nothing to do with the ROKU fundamentals. This is an expensive stock and Wall Street gives it a lot of leeway on that front. Meaning, this is one trade that is dangerous if it turns into an investment. Overnight the stock is under pressure. There is a lot of froth still in the stock pricing in future prospects that are yet unproven. In such situations, it is best to set specific exit strategies from tight stop loss levels in case the price goes the wrong way.
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.
