The stock market has rebounded quite nicely since the December selloff. Like the selloff, the subsequent bounce has largely consisted of big gaps, large moves, and unpredictable intraday swings. This also places many stocks and major indices at strong resistance levels created during a turbulent 2018. Should the market continue upwards, we will likely see a decrease in parabolic behavior as resistance levels will hinder large moves to the upside, bringing back a sense of normalcy to the market and relative stability which can help traders better manage short- and long-term expectations.
With many stocks having faced months of decline, it can be a challenge to make heads or tails of a stock’s chart. In times of stability, it is easier to spot good performance compared to poor performance, but when all the charts look the same, it feels like it’s anyone’s guess. During times like these, you want to look for stocks that have either outperformed the market, or stocks that are looking to recover from over-selling. When all charts begin to look the same, finding the stocks with the most support and least resistance can be challenging, as you may have to expand further than the typical one-year chart, looking back across multiple years to find support and resistance.
Let’s look at three stocks with more support and/or less resistance, providing better downside protection with upside potential.
Hormel Foods Corp (HRL)
Hormel Foods had a great 2018. That’s quite impressive when compared to many stocks, or the overall market in general. The stock is up over 26% year over year and is in a great position for making a run at recent highs. HRL has reasonably strong support at the $41.00 and $42.00 levels, but the support it has from the convergence of its 8, 20, and 100-day moving averages give the stock a great chance at additional upside gains. Should HRL break through its 50-day moving average, there are few levels of resistance in its path. Those levels of resistance above are relatively weak compared to the support the stock has below, and we could be seeing HRL taking on new highs sooner than later. Hormel Foods has an estimated earnings date of Feb. 28.
Mcdonald’s Corp (MCD)
McDonald’s did well in the second-half of 2018. MCD rose more than 14% since July 1, while the S&P 500 lost more than 6% in that time frame. While it did sell off with the market in December, it was able to find support in its 100-day moving average. After rebounding nicely, MCD has found footing in an area that gives the stock a great shot at making a run for all-time highs. MCD has numerous levels of support between $173.00 and $179.00, and those levels of support are stronger than the levels of resistance above. If MCD can use these levels of support to break though its 50-day moving average and resistance around $183.00, MCD stands a very good chance at setting new highs again soon. McDonald’s is expected to report quarterly earnings again on Jan. 30.
Best Buy (BBY)
When the heavy selling started in October, BBY really took a beating. It severely underperformed the market, losing more than 23% since the beginning of July. With the stock having performed so poorly, there is more upside potential when compared to other stocks, now that the stock has started to rebound. BBY has nestled itself between support and resistance levels around $56.00 and $58.00. If it can follow on strength and break through the $58.00 level of resistance, there is a lot of upside room to maneuver until it encounters stronger levels of technical resistance again around $65.00. The biggest obstacle BBY will have to deal with on its way back to the top will be its 50-day moving average. If it can break out of the trading range it has held tightly for the past two weeks, using its 8-day moving average for support, it could easily overcome the 50-day moving average and make some impressive gains.
S&P 500 Comparison
Looking at a 6-month chart and using the S&P 500 (Dark Blue) for comparison, you can easily see that HRL (Green) and MCD (Light Blue) outperformed the market when the heavy selling began in early October, while BBY (Red) underperformed by a wide margin. This gives HRL and MCD a very good chance to shoot for new highs, and BBY a chance at a more substantial bounce than other stocks that performed in-line with the market during the selloff.