Markets stumbled hard on Thursday, especially in the last 30 minutes. The Federal Reserve minutes statement had a positive effect on stocks, but they gave it all back up and then some. The relief pop from it lasted minutes, then it turned to a hissy fit. This of course changed very little since the Fed minutes were weeks old. The taper is coming and markets will have to deal with. Meanwhile, we have these top stock trades for Friday.
Top Stock Trades for Tomorrow No. 1: Zynga (ZNGA)
The reaction to Zynga (NASDAQ:ZNGA) earnings report was devastating. The good news is that the sellers made a mistake. They sold it down for the wrong reasons. This is a growth story, so that was an opportunity to buy the dip.
Click to Enlarge
There is another opportunity now and it’s shorter term. ZNGA stock is near the start of the massive earnings gap. If the bulls can convincingly take out $8.4 per share they will overshoot into the gap. The reward could be catching a 10% rally or more.
Longer term, the stock also had support from the action in March. Back then the buyers stepped in and ran 18% with it. A similar rally happened mid May. Clearly there are fans always lurking to buy it on dips. It’s a great ticker for the top stock trades list this week.
Furthermore, fundamentally this could also turn into a long term hold. It has a 3.5 price-to-sales which is cheap even in absolute terms. In addition, it is improving fast because it’s half of what it was in February. The financials metrics will come in line as the company matures. The focus now should remain on growth and they have that. Revenues almost tripled since 2018.
Top Stock Trades for Tomorrow No. 2: iShares 20+ Year Treasury Bond ETF (TLT)
Although the Federal Reserve doesn’t directly control bond yields, they have influence on them. This makes trading the iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) an adventure now. As you know, we are expecting them to start changing policies. This will surely make for new moves in bond prices.
Click to Enlarge
After a long weak stint, the TLT finally found footing. It has spent the last five months making higher lows and attacking resistance levels. The trade has worked well and now it faces big potential failures. This is where the buyers will earn their keep.
The three major lines to consider tomorrow and through Monday are at $151.2, $151.8 and $152.7. I think experts had it wrong. They have forgotten about T.I.N.A. — the acronym of there is no alternative. The U.S. debt is the only major one that pays a dividend. The rest overseas carry negative yields. This puts a solid bid under the price of bonds. Yields have limits for many other reasons too.
Staying long the TLT through these lines will bring a nice reward in the next few weeks. This trade has been ongoing, this setup would be another pace maker for it.
Top Stock Trades for Tomorrow No. 3: Invesco DB US Dollar Index Bullish Fund (UUP)
The Invesco DB US Dollar Index Bullish Fund (NYSEARCA:UUP) is a close relative to the TLT setup. It carries almost the same fundamentals from a macroeconomic perspective. The Fed’s actions will certainly move the U.S. dollar and the UUP. A tighter monetary policy should bring buyers into the greenback.
Click to Enlarge
Here too the experts had it wrong, selling UUP down in the first place. At least here I understand why. It’s the massive stimulus program that we unleashed that did it. But on the other hand we are stricter in other areas like yields. Nevertheless, the dollar has found footing and now there are lines to catapult it higher.
It took the UUP 455 days and a 16% drop from the 2020 high to bottom. Now it is well off the lows and attacking resistance lines. The next big catalyst should come from March 29 when it topped at $25.15. If the buyers can take that out, there will be open air for a large rally. Remember that a 5% move in currency is huge and this one can be even bigger. We have no more stimulus packages coming and likely the rest will start theirs. There will be resistance levels near $24.4 and $25.6. Seller of the UUP will show up there.
Top Stock Trades for Tomorrow No. 4: Skillz (SKLZ)
Skillz (NYSE:SKLZ) stock has already lost almost 80% of its value. It peaked in February but it has been death roll since then. The bulls tried hard in May and succeeded very well for a bit. But that effort also ended in disaster, as it fell 60% from the June high.
Click to Enlarge
Clearly there is something wrong with the stock. The bet here is less scientific than the other three top stock trades today. The basis for the call is to catch a falling machete. Even though it looks like the blade is 12 inches long and has a tiny handle, it’s worth the risk.
Because there isn’t a specific trigger, I would classify this as a speculative swing trade opportunity. Today SKLZ stock is making new lows going back months. It has been lower but that was May of 2020. There isn’t any recent support or bounce levels to target. It’s a buy and hope but investors should set a stop loss. Those vary from person to person as we all have different risk tolerance levels.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.
