Markets closed the week with strength, but investors are so fickle these days that sentiment flips flops on a dime. This is one of two variables in play driving equity markets this month. The other is the Federal Reserve. That’s because they are the reason for these extreme loose monetary conditions. Jackson Hole meetings are next week, so there should be fireworks. In addition, earnings season is still going, and there are top stock trades on Monday from all angles.
Top Stock Trades for Monday No. 1: Bilibili (BILI)
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The beating on Chinese equities continues. After every green tick, investors hope that the pain is over. Not so, as we saw Alibaba (NYSE:BABA) fall another 1.6% on Friday. Bilibili (NASDAQ:BILI) is not an exception, as it too lost 60% of its value since February. The area around $59 per share served as the base for a huge rally on December 2. These usually become forward support on the way down.
I expect that the reaction to the earnings report has shaken out the weak hands. Now perhaps the investors can step back into it to start the repairs. The upside potential could be big, and it is worth turning this trade into an investment eventually.
The bulls will need to plow through $70.40 resistance, and more of it near $80. It will be a slog, but it’s doable. The beat-downs were exceptionally harsh; their reversals could be equally as surprising.
The options markets provide ways to limit the out of pocket expense for bets. Yes, I used a gambling term because we do not know what China still has in mind. Nor do we know how investors will react to those headlines. Needless to say, that this is a speculative trade in the short term. I do like the stock from these levels, headlines aside.
Top Stock Trades for Monday No. 2: Pinduoduo (PDD)
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Pinduoduo (NASDAQ:PDD) stock is in the same pickle as BILI stock and other Chinese equities. Only this one is fast approaching a potential bottom. PDD stock bounced nearly 200% last October from just under $70 per share. This makes the zone below current price supportive.
It will report earnings this week, otherwise this makes for a logical investment entry point. If we are lucky, we catch a headline dip and turn it into a long-term investment. On Thursday, the stock bottomed at $74.10 per share. If it fails next week, then there would be pain to challenge the October lows.
Should the bears win that battle, the downside can be substantial. PDD stock investors may then have the opportunity to buy it close to $50 per share. While this is not my forecast, it is a possible scenario. Stranger things have happened, just look at what the catastrophe in an awesome company like Alibaba.
The upside of course is an eventual swing trade back to $100. There are plenty of resistance lines along the way. This is a good spot to remind everyone that the reaction to earnings is a wild card. Therefore, traders should temper their enthusiasm a bit until after they are out.
Top Stock Trades for Monday No. 3: Salesforce.com (CRM)
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Closer to home, we have Salesforce.com (NYSE:CRM) also reporting earnings next week. My bet is that traders will try to run it up into the event. The trade would be to get long early and try to scalp out a win before they even report. Time frames vary of course, but it’s fun to get in and out then watch the drama from the sidelines.
The last three days of last week, CRM stock had bullish action. It close Friday on a high since the November crash. Back then, the stock collapsed and eventually lost almost a quarter of its value. It bottomed in March, and has had a nice run since. After 27% rally, they can still bust out from here.
If the buyer can push it above $258 per share, the ascending trend can probably retest last fall’s highs. That would make for a nice exit zone for the short-term scalpers. At these levels, CRM stock is not that attractive for the start of a large fundamental position — especially into an earnings report. The short-term reaction to those is binary. Case in point, they have had two disasters and two extremely bullish moves off the last four. By my count, that’s literally a coin flip outcome.
Top Trades for Monday No. 4: Best Buy (BBY)
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Best Buy (NYSE:BBY) is likely to have a wide range week. It’s going into an earnings event this week from a tight price action. The last two weekly candle have been big DOJI. These usually suggest trader indecision. They open and close the week almost at the same spot. And in between, they try to rally and fail only to revert to the same spot.
The price area around $113 has been magnetic. My bet is that early this week, they will break free with violence. If the bears can break below $108.60, then they could try and go for $100. Conversely, if the bulls can break out from $119.50, they could really rally.
This won’t be easy for the bears, because they are fighting an incredibly bullish market. On the other hand, the bulls are also up against a tough test. The overhead supply of sellers is big judging from the volume profile. They are for now in muck, that’s why we have the two weekly DOJI candles. Overall, the straddle sellers will try to keep prices tight so they can capitalize on the high earnings volatility.
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.
