The price action on Wall Street last week was nothing short of incredible. This was the highest palpable moment of panic that I’ve seen in a while. We have had small corrections in the past year, but this was the most fantastic of them. Stocks capitulated past support levels too easily. This makes it very difficult to find stocks to buy with conviction.
Today I will share three ideas that should hold up under normal circumstances. However if the unreasonable investor mindset continues, there could be more pain. In other words, we would be smart to consider the possibility of lower prices still.
The problem this week is the Federal Reserve event smack dab in the middle of it. Even if we get a bounce today or tomorrow, investors will not dare take it too far. The Fed will deliver its verdict on how it wants to proceed. Consensus is now that they need to control inflation stat. This is after spending a whole year telling us that it wasn’t a problem. I guess what comes after the word transitory is panic, which makes absolutely no sense.
They spent a year causing inflation on purpose to save the economy, breaking it now is unreasonable. This is why I am a bit more optimistic than the narrative. I expect the Fed to say nothing too violent. In other words, stocks to buy today may rally out of relief on Wednesday afternoon and Thursday.
Wall Street may have imagined a scenario much nastier than the actual forecast. I contend that they will end the taper first. They may talk about starting the balance sheet runoff (selling assets). I doubt that they commit to a number of rate hikes, which Wall Street may interpret as positive. The Fed tried the harsh approach in 2018 and the market crashed. Mr. Powell had to restart the QE back then.
Until we learn more, let’s stick to the facts and leave the speculation to others. Last week, all mega-caps needed to hold important technical necklines. All of them failed, and triggered the drop on Friday. Now a few of them even have reached strong secondary and tertiary support levels. For example Netflix (NASDAQ:NFLX) has already lost all the premium it needs to.
NFLX now represents a perfect example of stocks to buy for technical and fundamental reasons. The company is still growing and it is now lower than its 2018 levels. Therefore falling from here would be approaching pandemic levels. Tighter monetary conditions are not equivalent to the mess during a complete global shutdown.
There are there are dozens of similar situations, and they are all stocks to buy on the dip. However I caution against going all in. If the indices fall further, they will drag all stocks down. Besides, there will be headline risk extending at least through Wednesday. But once that passes I bet the market breathes a sigh of relief.
Here are the three stocks to buy opportunistically, and book profits quickly if and when they come:
Stocks to Buy: Zoom Video (ZM)
Zoom stock soared during the pandemic and for good reason. When we couldn’t leave our homes, we needed ways to communicate face to face. Zoom services were the perfect solution, therefore demand exploded. Their user base and revenues rose exponentially for months.
Here is the important bit that makes owning these shares worth while. Management did an excellent job capitalizing on the opportunity. Contrast that with what’s going on with Peloton (NASDAQ:PTON) right now. It is now cutting expenses to absorb terrible growing pains. Zoom on the other hand has maintained the growth with no apparent hiccups. Unless, of course, you look at ZM stock, and it’s falling out of control. And therein lies the opportunity, because it reached levels close to the pandemic base.
Technically, there should be buyers lurking below $150 per share. Below that, there is a wide zone of contention that extends down to $115 per share. Therefore, the entry into ZM stock is not likely to be surgically accurate. Somewhere soon it should find footing, and may even rally back ferociously. I would expect that not to start until the markets stabilize.
Critics who doubt the success of management should just read their financial statement. Revenues exploded 4.2 times in 2020 and 1.5 times again last year. This is proof that they were able to fill the 2020 exponential growth, and go further the following year. In my book, that team deserves all the credit and the benefit of the doubt for this year and next.
Invesco QQQ Trust (QQQ)
The mega-cap tech stocks will take center stage this week for earnings. So far, these events for banks and Netflix have not exactly panned out. Even under normal circumstances, reactions to earnings reports are a ton of guesswork the next day.
Investors don’t usually react to the absolute quality of the score card. The mega-caps like Apple (NASDAQ:AAPL) have not deliver stinkers in a while. Yet, the reactions are negative about half the times over the years. The human element, specifically expectations are the trade drivers the next morning. Eventually, cooler heads prevail.
To bet on the outcome of this round, investors can use the NASDAQ ETF QQQ stock. This casts a system-wide broad net, and does not leave us open to single headlines. For example, IBM (NYSE:IBM) reports first this week. If it disappoints investors and they sell it down, the QQQ position may only suffer minimal damage. The hopes will still be in anticipation of the rest of them. Tesla (NASDAQ:TSLA) and Apple earnings will follow later this week.
After the beating that the indices took last week, the QQQ stock has lost a lot of froth. From high to low, the correction is now -14%. Prices on Friday fell into the October lows from last year. There are likely to be a few investors willing to bet up soon enough. But if that benchmark fails, then expect another round of QQQ selling to $316. I would also attempt to buy that dip if and when it happens.
Stocks to Buy: Crypto.com Coin (CRO-USD)
Another debacle unfolding late last week and through the weekend is in crypto. Bitcoin had been warning of technical weaknesses in the charts. Nothing has changed in the reasons to own, just relatively normal price action. It did fall through a technical trap near $42,000, hence the correction now.
However, therein lies the opportunity to pounce and into other crypto coins too. The sector moves relatively in tandem, so the BTC drop took CRO-USD with it. I consider this a buying opportunity, but it should not be all in. My forecast could carry much lower still with several support zones along the way. Don’t let that statement bother you, because then the bullish opportunity becomes even better.
BTC-USD and all its posse including CRO coin are falling fast. For the long run, investors would do well to accumulate their favorites over time. This means that we should not aim to nail a perfect entry. Therefore, nibbling now would constitute phase one of many.
I have successfully traded CRO-USD coin before and I’m looking to buy into this dip. Because I am confident I am not likely to pick the absolute bottom, I would only take partials. There will likely be interim relief rallies that the bears will try to sell them. I use Bitcoin to identify proper levels to trade CRO-USD. All the rest will follow the chief coin in charge relatively accurately. Intermittently they will outperform or lag it, but the whole sector trades in unison overall.
Crypto deserves to exist, and I expect it to play a pivotal role in our financial future. So far, they have been excellent investment vehicles for a decade. Our central banks are experimenting with the world finances. One of them may break something along the way. Therefore, it would be nice to have a completely independent form of value retention. Currently crypto and gold are too popular ones.
Crypto.com is a popular trading platform making inroads in the U.S. The CRO coin supports its efforts, so I expect it to do well in the long run. Last week there was a hiccup with their operation, so I will be monitoring the progress of that. At the first sign of trust trouble there, investor should immediately bail on that and pivot to Solana (CCC:SOL- USD).
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.