The markets displayed a bit more weakness on Friday, as investors got a little worried about a potentially larger pullback. I’ll end the column with a look at the S&P 500 — but for now, let’s focus on a few top stock trades for next week.
Top Stock Trades for Monday No. 1: Twilio (TWLO)
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Twilio (NYSE:TWLO) has quietly made its way higher, hitting new 52-week highs on Friday. However, the stock is still contending with resistance near $340.
This mark has stymied Twilio stock a few times since shares made new highs in October. I want to see if the stock can break out over this level, running through $350.
If it can do so, it will put the 138.2% and 161.8% extensions in play up near $375 and $395, respectively. Those extensions are measured from the November low to the October high.
If $340 again rejects Twilio, look for support from the 20-day and 50-day moving averages.
Top Stock Trades for Monday No. 2: Qualcomm (QCOM)
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Qualcomm (NASDAQ:QCOM) fell almost 9% at one point on the day on reports that Apple (NASDAQ:AAPL) will make its own modems.
At first, the dip looked quite buyable, as Qualcomm was selling off right into prior resistance near $150 and the 20-day moving average. However, both marks failed to buoy the stock, which fell into low $140s.
From here, short-term uptrend support (blue line) is coming into play, but I’m not sure I’d put too much weight into that. I’d like QCOM more on a dip to the 50-day moving average or on a rotation back over $150.
Above $150, and look for a gap-fill back up toward Thursday’s range (Dec. 10). Below the 50-day moving average, and look for a test of $130.
Top Stock Trades for Monday No. 3: DataDog (DDOG)
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Datadog (NASDAQ:DDOG) just keeps lingering in this current range, trapped between $93 and $103.
Ranges can be frustrating, but they also provided us with clarity. For instance, a close below $90 tells us this dog doesn’t have any bite.
That would put the stock below the 20-day, 50-day and 100-day moving averages, as well as this month’s low. It would even potentially put the November lows back on the table.
On the upside, we need to see some rotation over resistance. It looked like we were going to get that move on Thursday, but DDOG stock lacked follow-through. Look for a move above $103.95. That gives us a weekly-up and a monthly-up rotation.
It would open the door to $115-plus, potentially.
Top Trades for Monday No. 4: Nautilus (NLS)
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I have waited for this backtest for a long time in Nautilus (NYSE:NLS). Now, this stock won’t be for everyone, but if it can find its footing, we could see a nice boost in the name.
The stock is finally retesting the August high at $15.91. While NLS stock was able to break over this mark in September and run through $28, this level seemed notable to me. Hammering off it twice now, I really want to see a rotation back over the 100-day moving average for confirmation.
If we can get that, $20 and the 50-day moving average could be on the table. Above $22, and perhaps NLS stock can fill the gap back up to $26.
On the downside, however, a close below the $15.91 mark and we could see selling pressure unless it is quickly reclaimed. It may even put the 200-day moving average on the table.
Top Trades for Monday No. 5: S&P 500 ETF (SPY)
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Okay, let’s talk about the S&P 500 really quick, using the liquid and very accessible SPDR S&P 500 ETF (NYSEARCA:SPY).
Many investors have been clamoring for a pullback, arguing that stocks have run too far, too fast. Maybe that is the case — but maybe it’s not.
Adding to that, many investors had a bee in their bonnet from the bearish engulfing candle on Wednesday, the weakness on Thursday and more selling on Friday.
At midday Friday, traders seemed to be panicking. But let’s pump the brakes a bit here.
Perhaps the macro environment eventually rattles the cage enough to see some notable selling pressure in the market. That’s definitely possible. But as I wrote on Nov. 30, the trend isn’t breaking down just yet.
Sure, the SPY broke the 10-day moving average on Friday. But all it did was dip to the 21-day moving average and fill that little gap from November. If anything it created a nice little buying opportunity on Friday afternoon, potentially paving the way for a larger move into year-end.
Before we panic, maybe use these little shakes and bounces to trim some winners and after a big run — before the dip — it’s prudent to shift into smaller position sizes. Because remember, stocks take the escalator up and the elevator down.
For now, though, it’s not time to panic. A close below this week’s low could trigger a quick move down to the $352 to $355 area.
On the date of publication, Bret Kenwell held a long position in TWLO and NLS.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
