Even with a late-day fade, U.S. stocks started the week off strong on Monday. All three broad market indices closed at all-time highs. Each extended their winning streak to four sessions.
Skeptics likely still are waiting for a pullback. With a resolution in the trade war and signs that Brexit finally will take place, bears might have expected a “sell the news” response. Monday’s trading suggests that’s unlikely.
That trading also sets up three big stock charts for Tuesday. All three stocks gained on Monday, and for different reasons, all three stocks needed a strong session. The buying on Monday potentially sets up rallies through the end of the year and into 2020 — or so these charts suggest.
The first of Tuesday’s big stock charts admittedly doesn’t look all that impressive. On its face, Roku (NASDAQ:ROKU) hardly looks set for a rally. But Monday’s trading matters for ROKU stock for one key reason:
- Buyers stepped in. ROKU’s trading Monday sets up a so-called “hammer chart” pattern, but even that undersells the rally. ROKU stock clearly was heading in the wrong direction, falling from a double top and breaching near-term moving averages. Shares then fell nearly 4% in the first half hour of trading on Monday. There was a potential path to support and the 200-day moving average around $110. But from intraday lows, ROKU roared back, gaining 8.5% by the end of regular trading.
- To be sure, one session doesn’t mean ROKU is going to retest resistance near $170. The 50-day moving average still looks like potential resistance. Recent volatility is likely to continue. And I wrote just last week that ROKU looks questionable from a fundamental standpoint.
- Still, Monday’s rally seems to at least increase the chances of a reversal. In a “risk-on” market, ROKU probably is going to find buyers. Focusing on growth over valuation has been a wise strategy of late, both for Roku stock and the market as a whole, with Shopify (NYSE:SHOP) and Sea Limited (NYSE:SE) among 2019’s biggest winners. If U.S. stocks rally and the “growth at any price” mindset returns, ROKU can bounce back. Monday’s move is at least a step in the right direction.
The 1.8% gain in Fabrinet (NYSE:FN) on Monday isn’t quite as impressive as the rally in ROKU. But the second of Tuesday’s big stock charts might be better news because it seems to confirm a breakout:
- After several tries, FN stock finally broke through resistance after consolidating around $60. And with no sign of a pullback in recent sessions, it looks like there’s more room to run, particularly with some help from the market. FN even seems to have exited an uptrend that holds going back to late May lows.
- Fundamentally, the case still holds as well. FN trades at just 15x forward earnings, and even less backing out a substantial cash balance. If sentiment has turned, and it appears it has, that multiple can continue to expand, and Fabrinet stock can continue to rally.
- As always, there are risks. FN stock is cheap, but contract manufacturing stocks usually are. Technically, volume during the rally has been somewhat light. The trade war resolution probably is good news for Fabrinet, but a 40% rally from August lows incorporates some good news. There’s a lot to like here, but still some modest reason for caution.
Realty Income (O)
The 0.74% rise in Realty Income (NYSE:O) isn’t terribly impressive. The third of Tuesday’s big stock charts still looks bearish. But as with ROKU, there’s a case that maybe recent trading is a bit more bullish than it might appear:
- Buyers of late have been overrun; O stock even closed at session lows on Friday afternoon. But shares closed at session highs on Monday after dipping modestly in early trading. Obviously, that doesn’t suggest the declines are over, but it’s a start.
- To be blunt, Realty Income stock simply needed some good news. The decline from late October highs has been severe by its standards. O stock still is below moving averages. And as noted on Monday relative to Digital Realty (NYSE:DLR), other real estate investment trusts have struggled of late. Higher Treasury yields may be a factor, with investors searching less aggressively for income.
- Whatever the near-term outlook, O stock is intriguing here. Realty Income is far and away the largest monthly dividend payer. Around $68, its yield reaches 4%, which suggests support at that level likely isn’t a coincidence. To be sure, that support still is a way off, and Monday’s trading isn’t proof the stock won’t re-test that level. But there’s at least some hope that buyers might step in before O stock gets that far.
As of this writing, Vince Martin has no positions in any securities mentioned.