Optimism has returned to the equity markets in a hurry. U.S. stocks moved higher for a fourth consecutive session Thursday. The S&P 500 now has risen almost 4% this week alone. The NASDAQ Composite is up almost 5%.
Even in this confident market, however, a few stocks have been left behind. Friday’s big stock charts feature three of those names.
These aren’t stocks that investors have dumped, necessarily. Rather all three stocks have been mostly stuck, either in recent sessions or in recent months. The sideways trading is somewhat interesting in a market that has been much more volatile so far in 2020. And in all three cases, that sideways trading seems unlikely to last.
Barrick Gold (GOLD)
The news certainly has improved for Barrick Gold (NYSE:GOLD). GOLD stock has rallied over 50% from May lows. The stock finally has taken advantage of higher gold prices, long a problem for Barrick and the sector as a whole.
Ahead of fourth quarter earnings on Wednesday, however, investors have taken a ‘wait and see’ approach, as the first of Monday’s big stock charts shows. So it may be gold itself that determines the near-term move for GOLD stock:
- GOLD stock has established a narrowing wedge pattern. That pattern often means that the stock makes an accelerated move in whichever direction it exits the wedge. Right now, the bias probably is bullish. Both GOLD stock and the gold price have drifted higher since November. A small rally here would exit the wedge, break through recent resistance, and potentially augur an upside breakout.
- But for that to happen, gold prices need to cooperate. The Q4 earnings report might move the stock, but most commodity producers don’t necessarily see huge one-day swings. The options market, for instance, projects such a 4% move in Barrick stock between now and next Friday. A big move in gold could have a big effect, however, and technicals for the yellow metal do look somewhat promising.
- The reliance on gold prices does make GOLD stock intriguing at the moment. Presumably, moderating coronavirus fears should be good for stocks — and bad for gold, which could pressure shares. But Barrick, per its chief executive officer, may be looking to add more copper assets to its portfolio, even as the company denies rumors of a tie-up with copper giant Freeport-McMoran (NYSE:FCX). With so much going on, it does make sense that GOLD remains in a holding pattern, but I’d expect movement at some point soon, even if earnings aren’t the catalyst.
Gilead Sciences (GILD)
As the second of our big stock charts shows, Gilead Sciences (NASDAQ:GILD) has been trading sideways all the way back to late 2018. Shares have bounced of late, but Thursday’s retreat does look somewhat worrisome:
- On its face, the 3.55% pop on Thursday seems like good news. GILD challenged resistance and actually set a six-month closing high in the process. But intraday trading looks a bit weak: shares sold off after a big morning rally, and settled back toward long-term resistance. For over a year now, investors have simply balked at paying more than $70 a share for Gilead stock, and they did so again on Thursday.
- Admittedly, shares have built momentum of late and could continue to do so. Gilead’s remdesivir is being tested in China on an experimental basis as a coronavirus treatment. But Gilead also saw some negative news this week, with a disappointing fourth quarter report and soft guidance for 2020.
- Fundamentally, it does seem like resistance may hold. GILD stock does look cheap, and a 3.7% dividend yield helps the case. But the company’s own guidance suggests a double-digit decline in earnings per share in 2020; the stock probably should be cheap.
- And so GILD stock needs a catalyst — and remdesivir might be it. If it’s not, however, a return to the low end of the range hardly seems unlikely.
Cloudflare (NET)
Unlike most 2019 initial public offerings, security provider Cloudflare (NYSE:NET) has seen quiet trading out of the gate. That stands in stark contrast to the likes of Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT), which fell sharply almost immediately, and Beyond Meat (NASDAQ:BYND), which at one point had risen over 800% from its IPO price.
Here, too, investors are in ‘wait and see’ mode. That might change on Thursday afternoon:
- Early trading in NET stock has established a textbook wedge pattern, with the range continuing to narrow of late. Somewhat incredibly, given that Cloudflare is an unprofitable, high-growth name in a crowded field, shares haven’t closed below $17 or above $19 since late December.
- Fourth quarter earnings arrive after the close on Thursday and should lead to some movement. NET stock did trade basically flat after the Q3 report in November: shares gained 1.45% the following day. But 2020 guidance should be included with the release, and will be closely watched.
- With NET trading at about 18x 2019 revenue even backing out its cash balance, sideways trading isn’t going to last forever. A strong outlook for 2020 drives fundamental upside, perhaps leading NET to join the ranks of ‘hot’ growth stocks. Technically, an upside wedge exit would suggest a potential breakout, and establish near-term moving averages as support. Of course, the converse is true as well. At 18x sales, a soft outlook is not priced in. And there’s a lot of whitespace on the chart to the downside if NET stock stumbles next week.
As of this writing, Vince Martin has no positions in any securities mentioned.
