U.S. stocks tried, and failed, to rally on Monday. The S&P 500 and Dow Jones Industrial Average both staged midday rallies that nearly erased early-session losses. The NASDAQ Composite was in the green at one point, and did manage to close down just 0.27%. Still, the bottom isn’t yet in: the S&P faded late in the session to finish down almost 3%.
Hope remains that a bottom is getting closer. The U.S. Senate continues to try and pass a stimulus package. Futures overnight are up sharply. Valuations are more reasonable: the S&P 500 now is down by more than one-third from its Feb. 19 close.
Tuesday’s big stock charts focus on three names that are looking to find a bottom. All three stocks have seen some level of support hold in recent sessions. And each has a fundamental case for being able to survive, if not necessarily thrive, the short-term disruption caused by the coronavirus response.
To be sure, we’ve tried to focus on similar names in past editions of Big Stock Charts and the market hasn’t stopped falling. Presumably, the declines will stop at some point.
There’s a strong case for Biogen (NASDAQ:BIIB) at the moment. But the first of Tuesday’s big stock charts suggests investors might not yet be ready to jump on board:
- The multiple bottom is bullish. So is the fact that even on a red day on Monday, BIIB stock managed to hold its 200-day moving average. The stock has seen a pair of inverted cup-and-handle patterns during its pullback from February highs. If history suggests anything, another rally would fail and support would give way. From there there’s a real chance of filling the October gap, which implies downside risk near 20%.
- The fundamental case does seem more attractive. Like most biotech stocks, Biogen shouldn’t have significant exposure to macroeconomic factors. And the decline in the stock ignores two key pieces of good news of late. In February, BIIB gained 17.5% when its Tecfidera survived a patent challenge from generic giant Mylan (NASDAQ:MYL). Progress on an Alzheimer’s treatment spiked the stock in October.
- In this environment, however, even good news hasn’t been enough. And so even though Biogen stock has an intriguing long-term case, the chart shows clear short-term risk.
Activision Blizzard (ATVI)
There’s a lot going on in the second of our big stock charts. But after an 8% rally on Monday, there is a case that Activision Blizzard (NASDAQ:ATVI) has more upside ahead:
- Technically, it does look like a bottom has come in. ATVI stock has consolidated at levels that held last year as well. Meanwhile, Monday’s rally sets up a path to an exit from a narrowing descending wedge. From there, near-term moving averages would provide potential resistance, but ATVI could at least get closer to February highs near $65.
- Fundamentally, there’s a case for value at $56. Activision Blizzard may even get a short-term boost from the response to the coronavirus. Engagement for games like Call of Duty and World of Warcraft could spike. Even assuming a mid-term recession, video games are about as good as it gets from a “bang for the buck” perspective. With the stock trading at close to 20x earnings (excluding cash on the balance sheet), valuation doesn’t look stretched, either.
- I’ve personally been a skeptic toward ATVI stock for some time and remain so, as I wrote last month. For all the talk about the opportunity in video games, Activision’s long-term growth has been dismal. But many investors have disagreed — and still do. At a lower price, those investors may see ATVI as attractive, even amid a plunging broad market.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG), the third of Tuesday’s big stock charts, has also found support. PLUG stock might be able to catch a bid going forward:
- Trading of late looks about textbook from a technical perspective (something which hasn’t been the case for many stocks in this market). PLUG saw a head-and-shoulders pattern play out as it returned to December lows and found support. Now it’s bounced off a multiple bottom. There seems to be a path to re-test short-term moving averages, which suggests another 10% upside from here.
- The fundamental case does look shakier. PLUG remains a high-risk stock. The company still isn’t profitable on a net basis. Debt is a modest concern. And before a strong 2019, this is a company that literally had disappointed investors for two decades.
- But Plug Power might be more resilient than it would seem. Its two key customers are Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT), whose distribution centers are working overtime at the moment. Procter & Gamble (NYSE:PG) and Home Depot (NYSE:HD) are holding up as well. In that context, a decline over 50% might have been too much. And the hope is that if investors can see through the risk to find value in high-risk PLUG, they might be getting ready to do the same elsewhere in the market as well.
Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. He has no positions in any securities mentioned.