Bulls’ biggest problem on Friday was simple: Who wants to go home with long exposure ahead of the weekend? While that knife can cut both ways, the risk has been to the downside lately. In that light, let’s look at a few top stock trades going into next week.
Top Stock Trades for Monday No. 1: United Airlines (UAL)
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United Airlines (NASDAQ:UAL) did not give bulls the price action they were looking for on Friday. Shares fell more than 9% but even worse, they are undercutting a critical support level.
That’s too bad, too. Airline and travel stocks were trading quite well until recently.
The stock broke below $39 range support, which has been holding as a critical level since Dec. 1. Now breaking below it, we must consider that more downside may be ahead.
Specifically, I’m looking at the $30s, which was a prominent support/resistance zone in 2020. On the upside, though, $39 is key. If it’s reclaimed, the gap-fill level near $40.40 is in play, followed by the declining 10-day moving average.
Top Stock Trades for Monday No. 2: Nio (NIO)
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Nio (NYSE:NIO) does not look good. Shares are rolling over, down for the fourth-straight session, and are coming into the February low at $18.47.
If it breaks and isn’t reclaimed, more downside could be in play. I really hate to see this, because I know how many hopeful investors are trapped in electric vehicle (EV) stocks with huge losses.
Aside from holding last month’s low, bulls need to see this rebound back above $20. That will put the declining 10-day in play. If it can find any sort of momentum above that mark, $25 will be in focus, followed by the daily VWAP measure and the declining 50-day.
Below February’s low with no reclaim and this one’s a no-touch for the time being.
Top Stock Trades for Monday No. 3: Kroger (KR)
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You have to know where the relative strength is. If you are trying to trade, you want to know where the money is going. In this case — aside from energy and defense stocks — some of that money is going into Kroger (NYSE:KR).
Kudos to the longs that have been sitting in this one, as Kroger has erupted over the past two days. Be mindful, though, as we zoom out and look at the monthly chart.
I’d 100% be trimming here as we push through the 161.8% extension on the long-term chart. Inflation is helping drive sales and earnings up, but we also just saw flat wage growth in the monthly labor report. Without getting too speculative, I think taking off one-third to one-half of our long trade is the prudent move.
It still leaves the $65 and $80 levels as upside targets. But from here, the prudent move would be to lock in some gains and move to a break-even stop-loss.
Top Trades for Monday No. 4: Gap (GPS)
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Lastly, we have Gap (NYSE:GPS), which continues to be a complete dud since the last earnings disappointment in November.
The stock opened higher on earnings but faded from the key $15.50 to $16 area. Not only is this area former support, now turned resistance, it’s where the 21-day and 10-week moving averages come into play — along with the daily VWAP measure.
Now we see if $14 and Friday’s low holds. If it doesn’t, it’s back down to the February low at $13.12. Keep some perspective. While GPS stock has been crushed, its 2020 low sports a $5-handle. So don’t be stubborn if you’re in this one.
On the date of publication, Bret Kenwell 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.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
