U.S. stocks start this week in a solid position. The S&P 500 and the NASDAQ Composite sit at all-time highs. The Dow Jones Industrial Average is one-tenth of a percentage point away from joining them. And there’s a near-term argument for more upside.
After all, this past week saw the removal of two key points of uncertainty. The U.S. and China have come to a trade deal. A big win by the Conservative Party in United Kingdom elections strongly suggests Brexit will finally take place. The stage seems set for a classic “Santa Claus” rally.
To be sure, risks persist. Valuations are as high as they have been since before the financial crisis. There might be a sense that external news now is quiet — and as the old trope goes, a little too quiet. It’s somewhat difficult to argue that trade and Brexit, in particular, were drags on the market given that the same market rallied to all-time highs before their resolution.
Still, there seems to be a path to more upside for U.S. stocks heading into 2020. If that’s the case, stocks at a key pivot point could see the biggest near-term boost. Monday’s big stock charts focus on three such names.
As was the case with Friday’s big stock charts, which highlighted a similar theme, there’s a split between support and resistance. But the common thread is that all of these stocks seem set to make a move — and as such could be particularly susceptible to broader sentiment.
Intel (INTC)
The question when looking at the first of Monday’s big stock charts is relatively obvious. Can Intel (NASDAQ:INTC) stock break through resistance? As cheap as INTC stock looks, even after the rally off August lows, it will probably take some outside help:
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Click to EnlargeSource: Provided by FinvizIt’s difficult right now to see enough momentum to break through resistance. 30-day average volume, based on data from YCharts, last week touched its lowest point this century. Looking to the weekly chart, INTC stock faded near current levels last year as well. An uptrend has held, and Intel stock is nicely clear of moving averages, but it does seem like INTC will need more juice to drive a breakout.
- Fundamentally, Intel stock admittedly looks inexpensive. Shares trade at barely 12x 2020 consensus earnings per share. A 2.2% dividend yield helps the cause as well. But there are worries here. Execution has been lacking, and Intel clearly is losing market share to the likes of Nvidia (NASDAQ:NVDA) and, in particular, Advanced Micro Devices (NASDAQ:AMD). Last month, I made the case against INTC at similar levels, and five weeks later I’m skeptical all that much has changed.
- In that context, it might be sentiment toward the market and the sector that determines whether Intel stock can reach, and hold, $60. Admittedly, that sentiment looks positive. Mature large-cap chip stocks like Qualcomm (NASDAQ:QCOM) and Broadcom (NASDAQ:AVGO) have done well of late. The Philadelphia Semiconductor Index continues to rally. Those tailwinds might be enough for Intel to finally break through resistance and break out from there.
Mastercard (MA)
Mastercard (NYSE:MA) has made it through resistance for now. A 1.33% gain on Friday sent MA stock to all-time highs. The question now is whether the recent rally is a ‘real’ move, and if a further breakout follows:
- Technically, this looks like a rally that still has legs. Shares moved easily through near-term moving averages in early November, and bounced quickly off the 20-day moving average after a modest downturn at the beginning of the month. Volume has even picked up in recent sessions. It certainly looks like there’s a path beyond $300, unless that round-number level proves a psychological impediment to investors.
- Fundamentally, the case does seem a bit trickier. MA stock trades at a substantial premium to rival Visa (NYSE:V). That premium only has widened in recent weeks as Visa stock has seen a much lighter rally. It’s possible investors swap out Mastercard stock for either V or for a name like PayPal Holdings (NASDAQ:PYPL), which itself is facing stiff resistance.
- There’s certainly a sense that market attitudes have a big role to play here. As noted many times in the space, the rule in recent years has been that quality and growth win out over valuation. Selling a stock because it’s too expensive — or buying one because it’s too cheap — typically has been the wrong move. If that rule holds, Mastercard stock looks well-placed. But investors either worried about valuation or looking to wring out more upside might look elsewhere in the sector.
Digital Realty Trust (DLR)
Data center real estate investment trust Digital Realty Trust (NYSE:DLR) has headed in the wrong way in a hurry. A 16.6% decline from late October highs is one of the biggest declines in the S&P 500 over that period. It’s also a staggering pullback in a sector where volatility is not the norm.
But the pullback makes DLR look awfully attractive here, both fundamentally and technically:
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Click to EnlargeSource: Provided by FinvizSupport clearly has held not far from recent levels. Friday’s trading looks a bit (though not perfectly) like a hammer pattern which often precedes a reversal out of a downtrend. Even if $110 gives way, longer-term support clearly sits above $105, as shown on the weekly chart. Risk/reward here seems quite attractive from a technical standpoint.
- Fundamentally, there’s one potential data point that adds to the technical case. DLR stock at the moment yields 3.8%. We’ve seen round number dividend yields in widely-held stocks like IBM (NYSE:IBM) and Exxon Mobil (NYSE:XOM) bring in buyers. One has to wonder whether a datacenter REIT can have a 4%-plus yield for too long in this interest rate environment. DLR would yield 4% at $108, modestly below near-term support.
- The question is what the risks might be. The acquisition of InterXion (NYSE:INXN), announced in late October, clearly has spooked some investors. Guidance for 2019 FFO (funds from operations, a common measure of REIT profitability) was cut along with the third quarter earnings release, providing another downside catalyst. And there has been some sign in supplier results — including those from Intel — that data center demand is slower than expected.
- At a little over 17x 2019 FFO, however, at least some of those risks look priced in. And at the very least, it does seem like there’s a case for a near-term bounce between the chart and the dividend yield. DLR looks attractive here, and if the market rallies, it seems highly likely it will do the same.
As of this writing, Vince Martin has no positions in any securities mentioned.
