The 2019 scoreboard turned out great for equity bulls, but it was tumultuous for all markets. It’s been a series of trading headline after headline — making it difficult to have confidence on Wall Street. All sectors were affected, and toda,y we examine three such stocks to trade as we head into 2020.
Freeport-McMoRan (NYSE:FCX), United States Steel Corporation (NYSE:X) and Nio Limited (NYSE:NIO) investors had to withstand big rallies and collapses throughout the year. Just recently, X fell off a cliff, Nio doubled in one day and FCX rallied 50% in a couple of months to salvage its year performance.
With those types of performances, these clearly are stocks to trade into next year.
Stock Ready to Trade in 2020: Nio Limited (NIO)
Nio is a momentum stock like its competitor Tesla (NASDAQ:TSLA), meaning that it runs fast in both directions. Monday, it doubled on the positive reaction to its upside surprise in vehicle delivery report. While this sounds tremendous, the stock has fallen almost 90% since its highs in March; So, it’s digging its way back out of an abyss.
On the way down, it looked like it was headed to zero. So, this sudden upside burst is tempting to chase. But, before investors back up the truck and load up on Nio, they should consider that the giant rally sliced through all short-term levels too fast.
The Monday high was exactly the ledge from which the stock collapsed in May. So, the first retest of it faces tremendous resistance. This is not the same as saying it will never happen — but usually, the bulls need a few attempts before they retake prior accident scenes. $5 per share is in fact resistance until the buyers can prove they can retake it and use it for forward footing.
Combine this enthusiasm with the recent adoration of Tesla stock, and you get a situation where sentiment has suddenly swung too far positive too fast. So, there will likely be better entry points into NIO stock than now — especially if the goal is short-term profit.
Nio now needs to hold $3.50 per share or else it risks filling the gap to $2.65. The problem with fast profits is that it creates a bunch of weak hands. Those make for shaky bases, so it needs a shake out of a few of them before the buyers can flex more muscle. This morning pop needs to hold so that the bulls have a chance at a new leg of the prior glory recovery.
U.S. Steel (X)
In early December, U.S. Steel stock showed great technical promise. The chart was finally hinting at a big breakout, but then it all fell apart on a headline mid month when management hit the trifecta of bad news. They downgraded the outlook, cut the dividend and the buybacks. The investors panicked out of X stock in droves, and it is now 20% lower with almost no light at the end of the tunnel.
However, this makes it so that there are few incremental sellers left. Everyone that wanted to sell did so already, so this leaves the upside potential in 2020 the more likely scenario. The Warren Buffet mentality applies here: Buy when everyone else is afraid. The trick is to make sure to set limits to potential losses because having solid stop loss levels makes for more successful trading. Otherwise, catching falling machetes like X stock would cause investors to lose many fingers.
The U.S. Steel fans need to defend the recent lows, as it is imperative to stay double digits and not revisit the August lows. This will limit the damage done by the recent headline and the bulls can rebuild the upward momentum. The real battle would then be to breach through the $14 to $15 per share zone. The descending wedge still offers the best opportunity for X to recover by mid-2020.
Freeport McMoRran (FCX)
Freeport-McMoRan stock is ending the year up as much as the S&P 500, but it wasn’t all rosy. Most of the gains came from a late 50% rally off the October lows, and FCX stock is now trading inside a tight price range. This usually means that it will breakout soon from it, and the trade is to chase either side when it’s breached.
It is important to note that this is a trade more so than an investment. But, if the breakout happens to the upside, then FCX could use the momentum to take out the recent failure point near $15 per share and start another significant rally. So in a sense, this short-term trade could have long-term upside repercussions.
This action in FCX is happening above a very long-term consolidation zone that dates back more than 15 years. Moreover, it bounced off the pivot levels from April of 2003. Back then, this served as a spring board to a 130% rally in a few months — and then ultimately, ended up more that 500% at the highs of 2008.
This alone doesn’t mean that this rally here will have the same results, but it does suggest that FCX stock bulls have the benefit of strong support below. Responsibility is on the bears to find new reasons to go back to single digits.This also means that the bulls will have more than one attempt at breaching the resistance here and at $15 per share. Of course, for this to happen, management will have to avoid creating its own drama with balance sheet issues or strategic flubs.