Last Week’s Picks*:
VA: SEM -4.58%
SE: EXPE -4.03%
TF: HPQ -1.37%
SS: ANF -2.89%
It was inevitable that after the previous week’s out-performance, the next lot of picks would do poorly. Our trend following pick $HPQ ended up lower for the first time in nine weeks while $SEM and $EXPE also fell steadily. Volatility really picked up on Thursday and Friday and I will be watching the VIX closely this week.
Watching the VIX
The VIX is a useful guide for spotting market turns and in line with the white paper I published on Friday, I will be looking closely at the VIX this week with a view to trading the S&P 500 Index.
26.25 is the key level to look out for on the daily chart. If the index closes above this level I will be looking to enter a long position in the S&P 500 future. Holding period 2-10 days.
The key level to look out for on the weekly chart is 22.14. If the index opens above this level I will be looking to enter a medium term position in the S&P 500, holding period 2-10 weeks depending.
This week’s stock picks:
(vote for your favourite at the end)
Freeport McMoRan Inc $FCX
Value investors are having a difficult couple of months right now with the fall in energy prices and uptick in volatility. As a result, resource stocks dominate any list of cheap, undervalued companies.
There will surely be a let off soon for the energy space but this week may not be it. Nevertheless, I’m going to pick Freeport McMoRan. The stock is cheap according to most financial ratios and now pays a whopping dividend of 5.74%.
PEG is ultra cheap at 0.27 and the stock is extremely oversold with a daily RSI reading of 20.37.
Adobe Systems $ADBE
Adobe’s creative cloud software packages are doing extremely well this year and results last week showed the company was able to tempt yet more customers into paying monthly subs for the services.
While financial ratios reveal $ADBE to be expensive at these levels the momentum is with bulls here. The stock gapped higher on Friday on big volume and that momentum could continue for another week.
According to StockTwits, the stock has a 76% bullish rating among users.
• Another stock worth consideration is $LJPC. This pharmaceutical has a 100% bullish rating on StockTwits and saw some heavy insider buying last week.
Take-Two Interactive Software Inc $TTWO
Take-Two is a multimedia and graphics software company with a market cap of $2.37 billion. They also own the popular labels Rockstar Games and 2K.
Shares hit new 52-week highs on Friday as the rest of the stock market plunged.
Despite the leg higher, shares are not expensive trading at a PE of 13 and PEG of 0.46.
Krispy Kreme Doughnuts Inc. $KKD
Shares in Krispy Kreme dropped mid-week after reporting disappointing third-quarter sales. This comes after poor performance was seen in the previous quarter too and this has been mirrored throughout the sector.
Shares dropped on strong volume but recovered on Friday giving shorts another opportunity to enter the trade. StockTwits users are currently bearish on the stock, with an 80% bearish rating.
Small Cap Volume Strategy
As well this week, I am looking at a couple of stocks in line with another trading strategy that I’ve been working on.
After reading some of the research articles on Quantpedia, I’m trialling some strategies that involve buying stocks experiencing unusual volume increases.
Essentially, the strategy is to look for stocks breaking out on large volume, buy them on a limit order and hold until the week’s close.
This week’s selections are ChemoCentryx Inc. $CCXI and Hudson Pacific Properties Inc. $HPP.
Entries should be entered on limit order using the previous Friday’s close price as the entry.
There is a bit more to it and I will write up the strategy when I get time.
*Hypothetical results. Commissions and slippage not applied.
Additional Disclaimer: Please be aware of the usual risks to trading in financial instruments. Please remember the importance of doing your own research and understand the cost to trade including trading commissions and the bid:ask spread. Please remember to read the disclaimer. Stock picks are not to be construed as investment advice and no responsibility will be taken for any losses, risk or distress.
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