The end-of-day prices on the indices don’t suggest it, but Monday was one of the more volatile intraday sessions we’ve had in a while. With that in mind, let’s look at a few top stock trades.
Top Stock Trades for Tomorrow No. 1: GameStop (GME)
Based on some of the trading I have seen today, it would be irresponsible to tote GameStop (NYSE:GME) as any type of trade — long or short.
However, I think it needs to be highlighted because of its insane price movement. GameStop registered a trading halt for the second-consecutive session due to such heavy volatility.
Just look at today’s range (this is a four-hour chart, by the way), swinging between $61 and $159. That came after Friday’s 51% gain. This is an epic example of a short squeeze, where a massively shorted stock soars as shorts simply can’t cover fast enough. There’s other factors in play too, but it’s not necessarily worth getting into.
All you need to know is that this is a lesson in position sizing. Shorting GameStop was a massive mistake, but that mistake would be compounded by either:
- Adding aggressively and recklessly to a losing position and/or,
- Starting off with or allowing the position to become too big of a size relative to one’s portfolio.
It’s also a lesson in fear of missing out (FOMO) trading: Don’t chase if you’re too late. If the stock has gone from a close of $43 on Thursday to $140 on Monday morning — you missed out. Don’t make it worse by buying at $140-plus and now sitting on a $60 per share loss by the afternoon.
You don’t always have to be the speculator, it’s okay to be the spectator too.
Top Stock Trades for Tomorrow No. 2: Clorox (CLX)
Sticking with the lessons, don’t forget to look at different timeframes. In the case of Clorox (NYSE:CLX), consider the monthly chart.
I flagged this early in the day, but did not expect it to be such a quick winner, given the sluggish trading state of a name like CLX.
I love the way this stock powered higher for months and months, before declining for five straight months. However, the stock continued to hold the 10-month moving average, giving us an inside doji month in the most recently completed candle.
With Monday’s push higher, Clorox gave traders an inside-and-up rotation, clearing the $205.90 level. Learn to spot these pullbacks and rotations. They are not guaranteed winners, but they can offer excellent buying opportunities in strong stocks.
I definitely did not expect $225 to come so fast. Should Clorox clear this level, though, look for a run to the highs near $240.
Top Stock Trades for Tomorrow No. 3: Johnson & Johnson (JNJ)
Sticking with the old-school winners, Johnson & Johnson (NYSE:JNJ) is due to report earnings on Tuesday before the open.
Shares are an interesting juncture. A key extension isn’t all that far off, but JNJ stock has had a strong rally as of late. From here, though, the roadmap is simple.
On the upside, I want to see how shares do on a push up to the $169 to $172 area. There it finds several key extensions, both from the more recent range and the 2020 range.
Above the high end of this zone will eventually put the 161.8% extension in play at $182.52 (from the 2020 range).
If we have a lower reaction on earnings, I would love to see support come into play between $159 to $162. There JNJ stock finds the 10-day and 21-day moving averages, as well as uptrend support.
Below that, and a retest of $155 may be in order.
Top Stock Trades for Tomorrow No. 4: McDonald’s (MCD)
McDonald’s (NYSE:MCD) will serve up earnings too, but will do so later this week on the 28th.
And like JNJ stock, the setup is simple.
On a bearish reaction, see if the $207 area holds as support. If it does, a rebound to the 50-day moving average could be in play. If it doesn’t, a visit to the 200-day moving average may be in store.
On the upside, however, we need to see the stock clear downtrend resistance and the 100-day moving average. If it does, it puts ~$218 in play, the December high. If we can get a clean rotation over that mark, there could be upside to $230 or more.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.