For the second time in three trading sessions, U.S. stocks posted a negative intraday reversal. Major indices closed at the lows on Friday, but returned to all-time highs on Monday. On Tuesday, two of the three indices closed in the red; the Dow Jones Industrial Average eked out a 0.15% gain thanks to an earnings beat from JPMorgan Chase (NYSE:JPM).
To be sure, there’s no reason to panic. Intraday weakness appears to have been driven by modest disappointment on the trade front. The environment for U.S. stocks remains favorable, and investors have shrugged off trade war news in the past.
That said, there are some modest signs of rising risk. Earnings season ramps up next week, and little in the way of disappointment looks priced in. The rally of late has sparked memories of the January 2018 sell-off. Investors would be forgiven for being at least a little bit cautious at the moment.
In that context, Wednesday’s big stock charts look particularly interesting. All three stocks are facing near-term resistance after recent gains. For each, the question is much the same as it is for the market as a whole: does the rally have another leg ahead?
For Biogen (NASDAQ:BIIB), it does seem like more gains are on the way. Shares still look cheap, and the first of Wednesday’s big stock charts looks exceedingly bullish:
- Technically, there are multiple reasons to be positive toward BIIB stock at the moment. The multiple top pattern does lean bearish — but as part of an ascending triangle pattern suggests that shares are building momentum to break through resistance. Sideways trading since a huge October jump looks like a classic flag/pennant setup, a continuation pattern that suggests another move higher.
- Fundamentally, the case is strong as well. Biogen stock is cheap even by biotechnology standards, at barely 9x the 2020 consensus earnings per share estimate. October’s jump was driven by both strong third quarter results and progress on a treatment for Alzheimer’s disease. Fourth quarter earnings later this month provide another potential upside catalyst.
- near-term challenges. ‘Cheap’ stocks often haven’t been good buys in this market, yet it still looks like Biogen stock might be an exception to that rule. The one concern here is the longer-term chart. BIIB stock has been trading sideways for years, and still sits well below early 2015 levels. It has been cheap for most of that stretch. Investors likely have been focused on blockbusters Tecfidera and Spinraza, both of which face
Cooper Companies (COO)
Shares of contact lens manufacturer Cooper Companies (NYSE:COO) have rallied nicely from October lows. The key question with the second of our big stock charts is whether COO stock can keep rallying to new highs:
- Technically, the only issue seems to be resistance established by summer highs just above $340. COO has established a classic uptrend, trading well clear of even the 20-day moving average and doing so on reasonable volume. A “golden cross” last week suggests a bullish outlook as well. Cooper Companies stock certainly seems to have enough momentum to keep its rally going.
- Fundamentally, the case is intriguing as well. COO stock isn’t cheap, at 26x the midpoint of fiscal 2020 (ending October) EPS guidance. But stocks like this aren’t cheap in this market. The company’s contact lens segment drives the majority of profit (a surgical business focused on fertility remains a smaller contributor) and is a defensive business with significant growth potential. Alcon (NYSE:ALC) trades at almost 30x the consensus EPS estimate for 2020. Cooper’s earnings multiple can expand, and recent history suggests the company will outperform its guidance.
- That said, there are risks on both fronts, and little room for disappointment here. COO plunged after its third quarter earnings report in August despite an earnings beat and raised full-year guidance. It’s fair to wonder whether a company expecting single-digit profit growth this year can receive a higher multiple than the current 26x. To some extent, the easy money may have been made, but it does seem like there’s still more upside ahead if execution and the broad market cooperate.
Maxim Integrated Products (MXIM)
In a market where chip stocks have recovered nicely, Maxim Integrated Products (NASDAQ:MXIM) hasn’t yet been able to really break out:
- The resistance shown in the third of Wednesday’s big stock charts isn’t a near-term phenomenon. MXIM stock has had a lid on its for some two years now. An upside exit from a triangle pattern does look bullish, and the 20-day moving average has provided support in recent sessions. Still, MXIM has failed at these levels on multiple occasions.
- Despite sector strength, it’s possible resistance will hold. MXIM stock isn’t necessarily cheap, at 24x forward earnings. Growth remains muted, with profits likely to decline this year before bouncing back in fiscal 2021. And the integrated circuit manufacturer doesn’t seem to have the broad catalysts of better-performing, widely-held names like Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD).
- That said, Maxim does have exposure to increasing demand from automotive manufacturers, and the S&P 500 component has established its management bona fides. Maxim probably needs an upside surprise at some point — fiscal Q2 earnings later this month would be a good place to start — but if it can outperform, the long-awaited breakout might finally arrive.
As of this writing, Vince Martin has no positions in any securities mentioned.