It’s all about the news for many on Wall Street. But headlines are also prone to fading away or even revision, as we’ve seen this week. It literally can be “yesterday’s news” in a jiffy. And opportunistic investors can occasionally turn to the price chart and use others’ distress from the latest news report to find excellent stocks to buy cheap. Let me explain.
In Friday’s first half of trade, the headlines are insisting it’s all about escalating tensions between the world’s two largest super powers. But that’s not exactly new news, is it? We’ve seen this type of political theater before. And on each of those countless headline warnings, as others were fearfully selling, investors purchasing the panic were rewarded.
Still, the fact is, extracting profits from headlines or timing entries and exits based on the latest news is tricky business. This week’s bullish stimulus promises from Federal Reserve Chairman Jerome Powell following last week’s scary recession warning, or Moderna’s (NASDAQ:MRNA) countering novel coronavirus vaccine reports, are other news headlines that have drained more wallets than they’ve fattened.
To be clear, sometimes headlines suggesting a specific course of action are the real deal. But more often than not, Wall Street is buying those sold goods as others are dumping. As such, let’s explore three stocks to buy with bearish stories of their own this week … and much more durable price charts to buy into.
News Stocks to Buy: Take-Two Interactive (TTWO)
Source: Charts by TradingView
Big-time video game publisher Take-Two Interactive is the first of our stocks to buy. Shares fell nearly 6% Thursday as investors digested a stronger-than-forecast earnings release. The company behind wildly popular series like Grand Theft Auto, Red Dead Redemption and NBA2K also detailed a five-year plan which will deliver Take-Two’s “strongest pipeline in company history.” That’s good news, right?
The report does appear to have been a solid Q4 print. However, management did warn 2021 will be light on new releases and that the company will invest slightly more into R&D. And an in-tow modest revision to revenues just beneath analyst views appears to have been sufficient incentive for investors to take profits.
But the game for bullish investors is just getting started on Take-Two’s price chart.
Technically, yesterday’s profit-taking is today’s opportunity. Shares have pulled back to test their prior pattern and all-time-high after staging a sizable and very constructive breakout from a two-year long bullish inverse head and shoulders pattern. This news stock to buy is in position for purchase and I’m personally still confident our price target of $180-$200 for Take-Two stock will be captured.
Source: Charts by TradingView
One of China’s two largest Amazon (NASDAQ:AMZN) clones, JD.com, is our next stock to buy. Along with fellow imitator Alibaba (NYSE:BABA), shares of JD were off Thursday and are continuing to get hit Friday on raised U.S. China tensions as lawmakers also look to pass a bill to delist China-based ADRs.
The real story I’m seeing right now in JD shares is to trust the price chart rather than politicians and buy into today’s weakness. Technically, shares of JD.com have pulled back into a full-blown testing position of its former and pattern high. The decline in stock price follows Monday’s bullish earnings-driven breakout to all-time-highs from a failed and very bullish monthly chart head-and-shoulders formation.
In this strategist’s view, the powerful price signal and demonstrated relative strength trump today’s headline worries and make this a great stock to buy. Without being totally dismissive of other investors’ obvious worries, I’d advise using an intermediate-term, out-of-the-money bull call spread in lieu of buying JD shares with their open-ended risk profile.
Source: Charts by TradingView
Not that I’ve saved the best for last, but it may be the most interesting of our stocks to buy. Our final play is streaming video on demand giant Netflix. Shares were off nearly 4% during the session Thursday and finished down more than 2.5% . The news? The company announced plans to proactively cancel inactive subscriptions, which account for less than .005% of its total membership. Ho, hum, right?
Further, the step was already telegraphed during a recent earnings announcement.
So, what gives? Could the real bearish driver in shares have been an even more dated case of being yesterday’s news?
An article on Thursday from Investopedia which landed up at the top of Google’s search list discussed Netflix’s new, but not terribly exciting inactive accounts policy. Moreover, the story also noted Wedbush analyst Dan Ives warning of growing antitrust momentum for Netflix shares.
The warning was real. However, it appears to have been old news from months ago discussed on an interview on Bloomberg. Could that have been the actual, but mistaken, driver behind the sell-off? In this day and age of juiced-up algorithmic trading, I wouldn’t be too quick to dismiss the possibility.
The good news is the price drop is being offered to the advantage of today’s investors. Technically, the pullback in Netflix puts shares within 3% of April’s massive ‘W’ base breakout. I’d recommend buyers give this stock a bit more room down to $385 and size the position accordingly. Conservatively, this powerful and well-built pattern should reverse higher, continue to climb through 2020 and reach an eventual price target of $600 based on the structure’s overall size.
Investment accounts under Christopher Tyler’s management does not own any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.