If you’re thinking the market is overbought and at risk of a larger setback, you’re not alone. But in a market made up of companies, three streaming stocks should have investors upbeat on the idea of deserved profit-taking in some spots, as well as buyable price charts and bullish rotations into others. Let me explain.
Almost to the day five months ago, most investors would have thought what we’re seeing in the broader market today as impossible. March 23 marked a historic bottom for a breakneck speed bear market driven by the novel coronavirus pandemic. Of course, nobody knew it was a low with absolute certainty at the time. For most investors it may have appeared to be the dawn of a new era and bearish new normal for equities.
But March 23 was an intermediate low in the market. And what a bottom it’s been, as well as one that has continued to muscle its way higher this week.
Led by the large-capitalization, tech-heavy Nasdaq Composite, record new highs have been shattered almost daily for nearly three months. At the same time, those trophies have been even more delightful with burly year-to-date gains approaching 26% and a rally that’s extended itself 70% from the March low.
Investors can thank the likes of an increasingly influential Apple (NASDAQ:AAPL) and its newly-crowned $2 trillion dollar valuation as one stock key to this week’s extension in the Nasdaq. Likewise, a rally of more than 20% in just four sessions by EV kingpin Tesla (NASDAQ:TSLA) has taken on more importance. TSLA stock’s market capitalization has soared to nearly $375 billion and its weight within the Nasdaq 100 has topped 3%.
Amazing, right? But I wouldn’t touch either stock, or the Nasdaq for that matter, with a ten-foot pole right now. They’re overbought and arguably way overpriced. That doesn’t mean I wouldn’t be a buyer elsewhere.
Under the surface many market leaders have already hit the proverbial pause button on their price charts in recent weeks. The better news? Right now, three streaming stocks are sporting healthy-looking, constructive price charts ready for investors to hit ‘play’ and go long with stronger chances for success once more.
Streaming Stocks: Netflix
Source: Charts by TradingView
The first of our streaming stocks to buy is Netflix. On the weekly time frame, shares of the streaming video-on-demand giant have formed a first-stage corrective base. The price action follows a failed head and shoulders topping pattern nestled around a large, ‘W’ base. It’s unequivocally bullish, but there’s more too.
Six weeks into the correction NFLX stock has confirmed a small double bottom off the 38% retracement level tied to its March bear market low. As well and in an oversold position as indicated by its stochastics indicator, there’s plenty of reasons to see why Netflix is a streaming stock to buy today.
Spotify (SPOT)
Source: Charts by TradingView
The next of our streaming stocks in position for purchase are shares of Spotify. Like NFLX, the world’s largest streaming music platform has established a breakout from a large ‘W’, albeit a slightly irregular pattern, followed by a smaller, but meaningful first-stage corrective base.
Technically, this week’s price action has resulted in shares confirming a pivot low after three weeks of price declines. Combined with stochastics firmly neutralized and a common but important correction of 20% from Spotify’s all-time-high and near-perfect test of $300, this a streaming stock worth listening too. And its price chart is singing the praises for investors to buy!
Amazon (AMZN)
Source: Charts by TradingView
The last of our three streaming stocks to buy is Amazon. Okay, AMZN is more than just streaming. Further, the company’s Prime Video streaming platform isn’t close to generating the sales of its cloud and retail businesses. Still, Amazon is a heavyweight within the streaming space.
I’d even argue the point that if Amazon ever wanted to spin the business off, it would prove extraordinarily successful. But rather than spending too much time on hypothetical and splitting hairs, AMZN stock is setting up as a big-time buy on the price chart.
Unlike our other two selections, this streaming stock is almost finished putting together a second stage ascending triangle base. It’s healthy, but in need of a breakout confirmed by stochastics. Still, with a pattern signal roughly 2% above and the secondary indicator’s blue and red lines just narrowly out of position inside neutral territory, a buy decision for this ‘streaming stock’ looks close at hand.
Chris Tyler is a former floor-based, derivatives market maker on the American and Pacific exchanges. Investment accounts under Mr. Tyler’s management do not own any securities mentioned in this article. The information offered is based on his professional experience but strictly intended for educational purposes only. Any use of this information is 100% the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits
