U.S. stocks are sputtering into the end of the year. The news isn’t bad, to be sure, with broad market indices just off all-time highs. But an impressive rally that began in early October has petered out, and it’s difficult to see much of a catalyst before earnings season resumes in January. Sideways trading may well dominate until then.
Thursday’s three big stock charts focus on stocks that might buck that sideways trend. All three stocks have seen reasonably big movement in recent weeks — and these big stock charts suggest more moves are on the way.
For investors looking for action at the moment, these names might be a good place to start.
Tesla (NASDAQ:TSLA) looks set to continue an impressive rally. Shares have nearly doubled from late May lows, and the first of Thursday’s big stock charts suggests more upside ahead:
- In recent sessions, TSLA stock seems to be establishing another cup-and-handle pattern after it did so in late October. The first pattern played to form, with TSLA rallying to new highs. There’s reason to see history repeating. There’s little resistance until shares clear $360 (at least), volume has been solid, and the Relative Strength Index remains below 70 (though at 66, it is nearing overbought territory).
- Moving to the weekly chart, however, the outlook becomes a bit more mixed. TSLA stock is not far from where resistance has held repeatedly. In fact, Tesla first cleared $350 back in 2017; multiple runs to that level all have failed, and relatively quickly. The question looking forward might be whether expected near-term momentum will be enough to drive a breakout, or at least allow Tesla stock to finally hold the high $300s for a reasonable period of time.
- Fundamentally, that still seems a dicey bet to take. I have long been bearish on TSLA, and I’m not quite convinced otherwise just yet. But the bulls have been winning over the past six-plus months, and it doesn’t look like that streak is going to end soon.
For enterprise cloud provider Nutanix (NASDAQ:NTNX), the second of our big stock charts suggests near-term pain, but potentially mid-term gain:
- NTNX stock seems on its way to filling last month’s gap. Shares spiked after a fiscal Q1 report that nicely beat Wall Street estimates, but the rally faded as the calendar turned to December. It does seem like there’s a path toward $30, where the gap will be filled and Nutanix stock will retest the lower bound of its narrowing wedge.
- That said, there are reasons for optimism as well if and when NTNX finally stabilizes. There’s a reasonable chance of a bullish “golden cross” in which the 50-day moving average crosses above the 200-day. A bounce in turn could move shares back toward the higher end of the wedge, setting up a potential breakout.
- Fundamentally, the news looks mixed. Nutanix has a huge opportunity in cloud, particularly with its virtualization offering where it competes with VMWare (NYSE:VMW). A shift to subscription billing is pressuring near-term revenue, but should drive growth and margin improvement going forward. On the flip side, Nutanix isn’t profitable (or close), and VMW stock has struggled of late amid market and competitive risks. It does seem like NTNX has a real chance to rally, but technically the stock needs support — and fundamentally it needs patient investors.
American International Group (AIG)
Shares of American International Group (NYSE:AIG) need to find support, but the third of Thursday’s big stock charts shows that might be difficult:
- Clearly, support at $52 has broken. A modest bounce back to that level gave some hope that shares would hold, but after the last few sessions it looks more like support has switched to resistance. With AIG below all three moving averages, there’s not much of a technical argument for the declines to stop. Meanwhile, there’s a looming “death cross” in which the 20DMA crosses the 200DMA; for traders who put less stock in that combination, a 50/200 death cross is not far off. This simply is a bearish setup across the board.
- It’s possible that fundamentals are enough to offset the concerning chart. AIG stock is cheap, at 10x 2020 consensus earnings per share estimates. A 2.54% dividend yield helps as well. Insurers admittedly are cheap given interest rate expectations: Allstate (NYSE:ALL) trades at 10.7x forward earnings and Dow Jones component Travelers (NYSE:TRV) at 12.5x. Even given those peer multiples, however, it’s fair to wonder if investors will allow AIG stock to trade at a single-digit earnings multiple.
- Still, AIG stock has been mostly dead money going back some time, gaining just 3.5% total over the past six years. And while there isn’t a clear catalyst behind the recent decline, it’s possible that investors simply have tired of waiting. It’s hard to see at the moment how that changes, which means the bearishness suggested by the chart indeed could play out.
As of this writing, Vince Martin has a bearish options position in VMWare as a hedge to a long position in Dell Technologies. He has no positions in any securities mentioned.