The big stock charts featured this week have mostly been cautious at best. Owing to skittish broad market trading amid coronavirus fears, the focus mostly has been on stocks with potential downside, particularly if U.S. stocks began a long-awaited correction.
But it’s worth remembering that the financial news of the past few sessions hasn’t been that bad. Equities showed strength on Thursday, with all three major indices rallying into the close to post solid gains for the day. Those indices still are not far from all-time highs.
Underlying performance continues to be reasonably strong. Indeed, the three most valuable U.S. companies have posted impressive results this week, assuming Amazon (NASDAQ:AMZN) passes Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) for third place. And Amazon likely will move in behind Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) after a blowout fourth quarter report on Thursday afternoon.
In that vein, Friday’s big stock charts take a more optimistic perspective, focusing on names with potential upside ahead. Two of these stocks have attractive technical setups. Another has room for a bounce after support held. As always, broad market sentiment has to cooperate. But investors looking for trades with upside should take a long look at these three charts.
Lyft (NASDAQ:LYFT) stock has struggled since its initial public offering ten months ago. And no doubt many investors remain deeply skeptical of the ride-sharing model.
But the first of Friday’s big stock charts shows an attractive technical setup and a potential catalyst looming just a week and a half out:
- Resistance has held for LYFT stock around current levels going back to September, but the lows since then have moved higher. That creates a classic ascending triangle and suggests momentum is building as the stock tries to clear resistance. Shares clearly have exited a downtrend, even posting a bit of a reversal from a modestly narrowing descending wedge. Simply put, this is an attractive chart right now.
- The fundamental case for LYFT might seem less bullish. After all, the company remains unprofitable even on an Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) basis. True net profitability might not arrive until 2023. But as I detailed just this week, Lyft has a more intriguing case than one might think. Performance over the past few quarters has been hugely impressive relative to expectations. And yet Lyft shares have lagged those of rival Uber (NYSE:UBER), whose 2019 performance has been uneven and whose stock is more expensive. Combine another earnings beat with the chart and the fundamentals and LYFT has a real chance to break out.
- If Lyft can post another beat when it reports fourth quarter earnings on Feb. 11, the chart is set up for a nice post-earnings rally. Of course, that’s a big ‘if,’ and LYFT has struggled despite topping analyst expectations in each of its first three quarters. With a cheaper price and a better chart, however, this time might be different.
HD Supply (HDS)
HD Supply (NASDAQ:HDS) has a similar chart, but with one key difference: it looks like the breakout has begun. The second of our big stock charts looks bullish, and the industrial distributor has a solid fundamental case as well:
- HDS stock has formed an ascending triangle and on Thursday managed to break through resistance to a six-month high. It’s possible that the stock will dip back below the key level of $41. But HDS has seen solid volume in three straight green sessions, with particularly heavy buying yesterday. Moving averages have converged, setting up a “golden cross” as well. This simply looks like a stock ready to take off.
- From a valuation perspective, there’s plenty of reason for optimism as well. HDS stock trades at a little over 13x fiscal 2021 (ending January) earnings per share estimates. Other industrial distributors like W.W. Grainger (NYSE:GWW) and Fastenal (NASDAQ:FAST) have far higher multiples. HD Supply is separating into two public companies in a bid to close that valuation gap which could create a near- to mid-term opportunity.
- There are risks. Most notably, both technically and fundamentally HDS needs external conditions to stay positive. But HD Supply stock looks like an intriguing trade for market bulls who are wary of owning an unprofitable name like LYFT.
Melco Resorts & Entertainment (MLCO)
Melco Resorts & Entertainment (NASDAQ:MLCO) unsurprisingly has had a rough couple of sessions. The company’s casino operations in Macau are under significant threat from the spread of coronavirus in China and Asia more broadly.
But as the third of Friday’s big stock charts shows, there is hope for a reversal:
- Simply put, buyers stepped in. Support at this point has been confirmed repeatedly at $19. That level doesn’t suggest zero downside from Thursday’s close, but traders looking to play the range might well see MLCO as having a favorable risk/reward setup at this point.
Taking the longer view, the case does seem a bit weaker. Like larger rivals Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), MLCO has traded sideways going back to 2013, albeit with a lot of volatility. Investors who believe the recent sell-off is overdone might well look to those larger names instead. But MLCO is a purer play on Macau than either Sands or Wynn, who have significant operations elsewhere.
- It’s too early to argue that MLCO, this time, is set for a consistent and sustainable rally. But it seems pretty clear that, at least for now, investors are willing to step into any declines under $20. That makes MLCO one of the more interesting buys for investors who believe coronavirus fears are overdone — and for traders who see a reversal on the way.
As of this writing, Vince Martin has no positions in any securities mentioned.