Traders seeking small-dollar stocks should take a good look at Nokia (NYSE:NOK). Last month’s earnings report catapulted Nokia stock to a new high for 2020, and the price action has been extremely constructive ever since. That said, Tuesday morning’s pop is signaling the next upswing has begun — and the time to buy is now.
For better or worse, newer traders usually gravitate toward cheaper stocks. The first reason is their smaller account sizes. If you’re swinging a sub-$5,000 portfolio, then buying a bucketful of Nokia seems more appealing than grabbing a single share of Amazon (NASDAQ:AMZN).
Moreover, the second reason is related to the first. Larger percentage moves and higher volatility are more common to low digit stocks, and these are the characteristics aggressive traders seek to grow their accounts faster.
At $5, Nokia stock is dirt-cheap, but it’s moving in the right direction. Since the March low, NOK has more than doubled in value, matching the gains seen in many other leading stocks. Its Average True Range (ATR) is 15 cents, which translates into 3% average daily moves.
So, with all of that in mind, let’s take a closer look at the price charts to lay out the bull case for Nokia — and why patience may be required at this point.
Nokia Stock Charts
The weekly time frame illustrates why continued gains in the stock could be slower going than what we’ve seen over the past few months. From 2016 to 2019, Nokia spent its days ping-ponging between $4.60 and $6.60.
As a result, there’s a heap of overhead supply that prices have to chew through as they move higher. This is a less than ideal situation, and suggests the ascent could slow from this point forward.
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Also, the descending 200-week moving average is coming into play. Ever since we broke below it in 2016, this pivotal indicator has acted as resistance multiple times. And now, we’re testing it again.
That said, the signals on the weekly chart aren’t all negative. For starters, we are in an uptrend rising above the 20-week and 50-week moving averages. The trend hasn’t looked this healthy since 2017. So to gauge the strength of the rise, we can look to the RSI indicator — which is pushing toward overbought territory. At 65, it’s matching the highest reading of the past two years.
Additionally, with the bigger picture in mind, we can now analyze the daily time frame. The ascent from March’s bottom has been orderly and consistent. Both the rising 20-day and 50-day moving averages have served as gathering grounds for buyers.
Nokia spent June and July in digestion mode, building a clean base to launch from. It allowed the moving averages to play catch-up after May’s rapid rise. And on July 31, the stock took flight, inspired by a solid earnings report. The breakout finally filled the large down gap from last October’s nasty drop.
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As is often the case, the now-filled gap became resistance and halted the earnings rally. Fortunately, the pullback we’ve seen since has been mild. The shallow retracement suggests garden-variety profit-taking as opposed to trend-ending distribution. Volume patterns help support this narrative. We haven’t seen any major down days over the past week.
Buy NOK Stock
Tuesday’s rally is ending the four-day streak of lower daily highs and signals the next upswing is beginning. So if you’re a believer in the uptrend and think the post-earnings momentum continues, then this is as good an entry as any for buying shares.
And because of the low price, I see no reason to dabble with options.
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