Heading into 2020, U.S. stocks sit at all-time highs. And excluding a few challenged sectors like energy and retail, it almost seems like every stock is at an all-time high, or at least has closed the year strongly.
That might be an exaggeration, but it’s not much of one. Among stocks with a market capitalization over $300 million, over one-third are within 5% of their 52-week high. For growth names, in particular, the rally that began in late August has been particularly broad.
But there are stocks out there that have closed the year trading sideways. Monday’s big stock charts focus on three of those names. And in all three cases, relatively quiet trading at the end of 2019 sets up potentially bigger moves at the beginning of 2020. The key question might be not if these stocks will break their recent ranges — but in what direction they will head.
Walt Disney (DIS)
December actually has been a bit disappointing for Walt Disney (NYSE:DIS) stock. Disney shares have declined 4.1% so far this month, while the S&P 500 has gained 3.2%. Despite that modest pullback, the first of Monday’s big stock charts actually looks bullish:
- DIS stock spiked higher in November, thanks in large part to an impressive fiscal fourth quarter earnings report. Those gains, combined with softer trading in recent weeks, creates a classic flag pattern. Those patterns usually see a similarly small fade following a gap up which is then followed by yet another leg higher.
- Disney stock certainly has potential catalysts that could drive that trading. Fiscal Q1 results likely arrive in early February. The announcement of the Disney+ streaming service sent shares soaring in April, and optimism there could help. Disclosures from the company — or speculation from Wall Street — on adoption and/or subscriber numbers provide another potential boost. And, at some point, if U.S. stocks keep rallying, DIS is likely to join in.
- The key risk here is that DIS stock will require a patient, and likely positive, broader market. The streaming launch will negatively affect earnings in fiscal 2020 and likely fiscal 2021. The company’s legacy media businesses like ESPN face significant pressure from cord-cutting. There is a sense over the past eight months that Disney tends to gain when investors are reminded of the streaming opportunity, while it falls when those investors remember the challenges elsewhere in the business. It may keep falling unless or until there’s more good news from Disney+.
Okta (NASDAQ:OKTA), the second of Monday’s big stock charts, looks headed for a decision point:
- Recent trading has established what looks like a classic triangle pattern. The narrowing band of price movement usually suggests that a breakout looms.
- Forced to choose, investors should probably lean bullish. OKTA has established a solid uptrend since setting a double bottom in October. Shares have rallied in recent sessions, bouncing off moving averages in the process. The chart suggests a path to $130 — last month’s highs — from which Okta stock could re-test resistance at $140 that held in August.
- That said, there’s a bearish scenario here as well. Somewhat unusually, the 50-day moving average has crossed the 200-day twice in recent months. Any weakness would lead to yet another switch and a so-called “death cross” in which the 50DMA dips below the 200DMA. Valuation here is questionable, as I detailed back in October, which suggests that at least fundamentally a reversal wouldn’t be shocking.
- Of course, there’s no shortage of names that will struggle if investors again start questioning. Shopify (NYSE:SHOP) and DocuSign (NASDAQ:DOCU) are among them. But the second of Monday’s big stock charts shows that OKTA, too, is at risk. A downturn would push the stock below moving averages, and potentially lead to 15%-plus downside back to support at $100.
RingCentral (NYSE:RNG) is another of those names with a hefty, and worrisome, valuation. The UCaaS (unified-communications-as-a-service) provider trades at 16x this year’s revenue — and over 200x earnings.
But the third of Monday’s big stock charts looks much more bullish than those fundamentals suggest — making RNG stock perhaps a name to watch for investors who believe that the 2020 market will look much like that of 2019:
- RNG stock has established a textbook pennant pattern, with narrowing trading since a huge gain following a partnership announcement with Avaya (NYSE:AVYA). Like flag patterns, pennants are continuation patterns, meaning RingCentral shares should have another leg up. As with Disney, an earnings report in early February looms as a potential catalyst.
- But as with OKTA, RingCentral stock likely needs some help from the market. Again, valuation looks possibly stretched. Smaller rival 8×8 (NYSE:EGHT) actually has declined over 30% from its late July highs, and Vonage Holdings (NYSE:VG) has fallen even harder. There are some cracks in terms of investor sentiment toward the sector. RNG has been kept up by sentiment toward sector leaders, but that sentiment needs to hold — and so does the company’s impressive performance.
- And so RNG stock seems like an intriguing play for traders willing to pick a firm side relative to overall valuations at the moment. For those who look for momentum stocks, RingCentral stock is a strong play heading into 2020. For those considering betting against the “growth at any price” mentality continuing into next year, RNG might be an attractive name to bet against.
As of this writing, Vince Martin has no positions in any securities mentioned.