There are substantial moving parts impacting the stock market right now – Russia, inflation, and interest rates lead that list.
But the market news is getting moderately better, with the Dow ticking upward this week (the DJIA was up 0.51% for the week, but still down 3.87% on a year-to-date basis.)
In such an uncertain market, it helps to have tools that make “buy the dip” investing easier to gauge. That’s where 21-day averaging comes into play.
“Frustration among traders is definitely on the rise,” wrote Real Money Columnist Bob Byrne recently. “With no meaningful progress between Russia and Ukraine, bond prices crumbling, crude oil holding stubbornly above $100 a barrel and the Fed turning increasingly hawkish, most investors are dumbfounded by how stocks are behaving.”
According to Byrne, the easiest way to stay on the right side of the market is to use a moving average as a directional pivot. “That pivot is the 21-day exponential moving average (EMA),” he said. “So, while a break above the 21-day EMA doesn't mean a stock is in a new bull market, it does suggest that sellers have lost short-term momentum.”
Byrne uses the Invesco QQQ Trust (QQQ) as an example. The fund was trading at $359 as of March 25, and was trading at $350 on March 19 – the date of Byrnes’ tutorial on TheStreet.
“For example, the ETF closed above the 21-day EMA and established a short-term higher high on Wednesday, March 16,” he said. “At that point, momentum shifted in favor of bulls.”
While momentum can turn back in favor of bears quickly, unless you're a higher timeframe investor stalking a long-term short position, it makes more sense to begin identifying stocks to buy on a dip than it does loading up on new short positions.
“Now that fear of missing out is running rampant and many stocks have bounced by 20%, 30%, 50% or more, near-term trade risk is high,” Byrne said. “With the QQQ closing above its 50-day simple moving average (SMA) and the year-to-date volume-weighted average price on Tuesday, March 15th, my attention has shifted toward the 200-day SMA and volume-weighted average price anchored to the Nov. 19, 2021, all-time closing high.”
Given the magnitude of the rally over the past six days, Byrne’s preferred approach is to buy a dip. But given how many traders are also anxious to buy the dip, getting a good correction may be too much to ask.
Here, Byrnes’ primary area of interest falls between the 21-day EMA and the volume-weighted average price anchored to the Feb. 24 bullish reversal.
“In a nutshell, my target area on QQQ is $342 to $336.50,” he said.
With plenty of dip buying opportunities available in choppy trading, here are the opportunities TheStreet’s trading experts are looking at this week.
Corteva CTVA $59.20. 5-day performance 6.00%.
Corteva (CTVA), the seed and agriculture giant, has come through for shareholders so far in 2022 – it’s up 24.28% on a year-to-date basis.
But with food shortages dragging the agriculture sector, can the company keep up the pace? RealMoney’s Bruce Kamich thinks so.
“We reviewed the charts of the seed and ag company Corteva way back on October 13, 2020 where we wrote that ‘CTVA could trade sideways in the $33 area before moving higher again,’” Kamich said. “Traders could look to go long CTVA in the $33-$32 area, risking a close below $30 for now. The $43 area is our objective for now."
Now that an experienced sell-side analyst has raised CTVA’s price target, it’s time to check on the charts again.
“In a daily bar charts, we can see that prices have traced out a neckline across $50 to $49,” Kamich said. “Prices have broken out on the upside and trading volume has increased as prices have surged higher. Prices are in an uptrend as they trade above the rising 50-day and 200-day moving average lines.”
Meanwhile, On-Balance-Volume (OBV) line was in a long decline but has recently shot higher. The Moving Average Convergence Divergence (MACD) oscillator is also in a bullish alignment above the zero line.
“We can see that prices are in a longer-term uptrend above the rising 40-week moving average line,” Kamich said. Our candlestick charts are white (bullish) and there are no upper shadows telling us of a rejection of the highs.”
Kamich said his point-and-figure data shows a potential upside in Corteva to $68 per share and, over the long-term, even higher.
“We have recommended purchases of other ag plays like MOS, CF, BG and ADM, and now we can add CTVA,” he said. “Traders could look to buy a dip to $55 on CTVA risking to $49. Our targets are $68 and then $84.”
Adobe Systems ADBE $430.45. 5-day performance (-)5.05%.
Adobe stock is trading lower after the company's earnings report. Here's where support may come into play after the dip.
“Investors were hopeful that Adobe Systems (ADBE) could break its brutal downtrend with this week’s earnings report,” said TheStreet’s Bret Kenwell.
Unfortunately, that scenario has not come to fruition. Shares were down about 8% on March 23rd, despite the company reporting an earnings and revenue beat for its first-quarter results.
The stock had rallied in six straight sessions ahead of the report, climbing 15.7% from the previous week’s low. They slumped again after the report.
“It wasn’t last quarter that was the culprit,” Kenwell said. “Instead, it was management’s outlook for next quarter that disappointed investors. Part of that muted outlook was due to Russia’s attack on Ukraine impacting Adobe’s European business.”
“With the dip, Adobe stock is currently 38% off its all-time highs made in November,” he added.
This week, Kenwell has taken another look at ADBE’s chart to see if there’s any reason to build a case around buying Adobe right now.
“Overall, I don’t like how poorly Adobe has traded,” he said. “Even though many tech stocks are mired in a brutal bear market, others have been able to hold up. Apple (AAPL) has traded pretty well, as has Microsoft (MSFT) despite a recent data hack.”
The lack of relative strength is discouraging for a name that many consider a high-quality company. “Adobe fits into that category,” Kenwell added. “Currently below all of its major daily moving averages, it’s hard to trust Adobe stock on the long side right now.”
On the plus side, the stock shows support near $420, and that continues to hold. That said, it’s also below the 61.8% retracement of the current rally from last week’s low.
“What I’m watching specifically would be an undercut of this month’s low near $408 and for a potential tag of the 200-week moving average,” Kenwell said. “That could set up some sort of reversal trade for the bulls, particularly if tech stocks can continue to show bullish momentum.
On the upside, a recovery of the 61.8% retracement puts the 10-day and 21-day moving averages back in play. Above these short-term moving averages puts the gap-fill near $450 on the table.
“All in all though, I remain cautious on this name right now,” Kenwell advised.
Microsoft MSFT $301.58. 5-day performance 0.36%.
Microsoft stock dipped on March 23rd, after worries about a 'limited access' data hack.
As if companies aren’t having enough troubles these days, given labor shortages, semiconductor woes, and flailing consumer sentiment, data hacks are a thing again.
On March 22nd, Okta disclosed a potential data breach from hackers that appeared to have taken place in January. The news came amid increasing cyber-attacks as geopolitical tensions continue to rise. The next day, Microsoft says that those hackers gained “limited access” to some of its systems.
No customer code or data was involved in the LAPSUS$ breach, which effectively involved only one compromised account, Microsoft noted in a statement.
That’s good news for Microsoft investors, TheStreet’s Bret Kenwell said.
“Given the company’s $2.25 trillion market cap, this isn’t anything that should worry long-term investors,” he said. “That said, headlines like this come at a time when tensions are high amid Russia's attack on Ukraine and when many tech stocks are entrenched in nasty pullbacks. “
At one point last week, Microsoft stock was down about 2% on the news and broader weakness in the market. The stock has since reduced those losses to less than 1%.
What’s the outlook going forward? Kenwell has a take on that.
“While Microsoft stock was moving lower right after the data leak news, the shares have been enjoying quite the run lately,” he said. “Coming into March 23rd trading, the stock had rallied in five of the previous six sessions, climbing more than 10% from last week’s low.”
Over the next few days, Microsoft stock rallied into the 50-day and 200-day moving average range, as well as the prior March high near $303 and a big breakout level at $305.
“I don't like to put all my hope on one level,” Kenwell said. “Instead, I like a confluence of levels and measures. Why? Because it increases the odds that support or resistance will hold and if it doesn’t, then it speaks to the respective strength or weakness of the move.”
In the case of Microsoft stock, Kenwell wants to see whether it can shake off the bad news and ultimately clear last week’s high and $305.
“If it can, it opens the door to the $318 to $320 area,” Kenwell said. “There it finds prior support and the 61.8% retracement of the correction.”
If the $300 to $305 area holds as resistance, he wants to see if some of the short-term moving averages can boost the stock.
“Below $290 could put $283 back in play, followed by clear support between $270 and $275,” Kenwell said.
