Investors bought the Monday morning dip with force. The S&P 500 recovered from a sharp drop at the open and broke records again. Overall, the bulls are in charge and the sellers are on vacation still. This was challenged on a red Tuesday, but the earnings are still telling good stories. We are also waiting on the Federal Reserve meeting minutes. Even though these are accounts of past events, investors still fret them. This increases the number of top stock trades as the anticipation rises.
Additionally, markets are awaiting the beginning of the end of this long QE stent. Fed chair Jerome Powell re-lit that fire in December of 2018, weaning us off that drug will take skill and luck. Step in to announce the taper, and the size of it is the interesting variable.
So, with all of that in mind, here are a few top stock trades during this volatility.
Top Stock Trades for Tomorrow No. 1: Nio (NIO)
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Nio (NYSE:NIO) stock has lost 15% in August, and it’s even worse if you look back a bit farther. Chasing runaway rallies is always risky. Those who did that in January or June have suffered a lot of losses. The opposite practice is also treacherous. Panicking out of a stock as it approaches prior support zones is wrong.
Such is the case with NIO stock. The May price action created a zone of support starting at $36 per share. It’s not a hard line, but I bet there will be buyers lurking there. For the rest of the week, it will be a matter of them gaining the confidence to step up.
This will be tricky if equity markets especially in China continue to be jittery. Even in the U.S. where stocks have never been higher, investors are on edge. The CBOE Volatility Index has jumped up the last two days. Regardless, NIO stock at $38.50 may have triggered a bearish pattern. It has hard supports at $36, $33.50 and $32. Losing $30.60 could open up a new can of worms.
Overall, catching this falling knife is a trade that can double as a swing trade investment into next year. Since equities are near highs, it would make sense for traders and investors to set appropriate stop losses.
Top Stock Trades for Tomorrow No. 2: Walmart (WMT)
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Walmart (NYSE:WMT) reported earnings on Tuesday, and investors liked the news. They popped the stock to $152.50 as the knee jerk reaction. However, I expect a fade from here. So the right trade is to first not chase the rally. Traders who took longs to trade the earnings will probably lock their profits.
Longer term investors should be leery starting new positions at these altitudes. The results were fine, my only concern is with the price action. Charts hold the truth of prior behaviors. For a year, this zone has served as a top region. Starting longs now carries a lot of risk. Onus is on the bulls to first take breach above it.
That would be the caveat to my warning. If indeed the buyers accelerate their activities then I would stop out from any shorts. The fast trade would then be to chase it up 5%. Earlier I noted that the report card was fine, and I meant it. There was nothing great about it, so fundamentally the pop was strange. Growth and comparable metrics were mediocre, especially adjusting for currency effects. While that is not a reason to short a successful company, it’s definitely not reason to pop the bubbly.
Top Stock Trades for Tomorrow No. 3: Roblox (RBLX)
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Roblox (NYSE:RBLX) earnings reaction is negative and wrong. They crushed the absolute numbers from last year, and delivered improvements on margins. For a growth company, that’s the ideal scenario. That said, the trader expectations were wrong going into the headline.
This is a human emotion response to hard positive data. Every metric from revenues, bookings, active users showed big increases to last year. Management is doing its job growing the business, so fundamentally there are no alarms from the report cards. Revenues more than doubled since 2019.
This is not a cheap stock, but it’s OK for now. Its price-sale (P/S) ratio is right around 40 still, so there is fat to trim. Eventually the growth rate of sales will bring that metric in line. Moreover, it is already 20% cheaper than it was in June. Progress is a good sign, and the buyers will step up.
Technically, they have done that since May under $75 per share. It is a zone with many candle wicks that bounce and close off the lows. The lowest close it’s had was 76.19 on July 27th. That day marked was tough on all momentum stocks like these. Investors should not panic on a 3% drop. Swing traders have to opportunity for a recovery bounce this year. Selling put options on bad days makes sense for those who want to own shares lower.
Top Trades for Tomorrow No. 4: Nano Dimension (NNDM)
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Get ready for some action in Nanon Dimension (NASDAQ:NNDM) stock. We already know this thing moves fast as it rallied hard from October in three months. But it can also be impressive on the way down. NNDM stock fell 4.4% on Tuesday, and that’s after it being down more than 60% already from highs in late January.
The action from here could get pretty impressive, and there will be a fight. The stock is threatening to lose support from its last bounce line. On May 13, the bulls stepped up in force from $5.50. They are losing it here, so the action will be wild this week.
The buyers will try to defend it hard. If they are successful then the opportunity could be 25%. They will then face sellers as they approach $7. Conversely, if the bears prevail, the next stop lower is 20% lower if not more. Add to this the explosive nature of an earnings report, and you’ve got a live one.
This opportunity is not for the faint of heart on the headline. Slower investors should trade it after the earnings report when they have an update on the business. Near $4.30 makes for a compelling entry point on a disappointing reaction. Fading it at $7 would be the bearish bet if it spikes.
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.
