These four stocks all had greater than 5% moves on Friday, May 23 and could be setting up for more strong moves as they break the current price patterns.
Isis Pharmaceuticals (Nasdaq:ISIS) jumped 11.46% on May 23, and is on the verge of breaking a strong downward trendline and moving beyond a former swing high at $28.08. Add to this the higher low in May and there is a case for a rally to the upside, at least in the short-term. The trend remains down but a close above $28.08 creates a short-term bullish case and provides an initial target of $34.50 to $35. The weekly chart shows a long-term uptrend, so a rally off the recent lows could set up a longer-term trade as the price attempts to retrace much of the recent decline. The 50% retracement level--a viable target--is at $41.75. Drop back below $23 though, and beware.
Hewlett-Packard (NYSE:HPQ) has been in an uptrend since late 2012, and consolidating below $34 since the start of April. This stock can move choppily, so a close above $34 may not cause a surge higher--like the 6.10% rise on May 23--but rather simply indicates the uptrend is continuing. The initial target for the next wave is $35.85 based on the trend channel over the last seven months. A larger channel provides a target for the long-term trend near $39. A drop below $31 doesn't negate the long-term uptrend but does indicate the opportunity is no longer ideal for active traders since a larger pullback could develop.
Sina (Nasdaq:SINA) was trading near $48 for most of May, then tanked on May 22 only to rally 8.16% on May 23, creating a high volume bullish engulfing pattern. This pattern occurs near a support area based on major lows in 2012 and 2013. Despite the trend being currently down there is potential for a high reward to risk trade on the long side. A move back above $49.75 establishes the potential that the bears have lost control, at least for the short-term. A rally could take the stock into the $65 area over the coming months. A drop back below $42.40 makes the long trade too much of a wild card, since a further decline below the 2012 low at $41.14 could send the price significantly lower.
Over the long-term Lions Gate Entertainment (NYSE:LGF) is in an uptrend, but over the last 9 months has been channeling lower. The price recently broke above a consolidation at the bottom of the channel, indicating a rally toward the top of the channel near $31. If the price can move above the channel it sets in motion another long-term wave of the uptrend, which should test and exceed the high at $37.81. The main risk here is that the downward channel continues and the price drifts lower. One way to mitigate this risk is to take profit on a portion of the long position at the channel top, and hold the rest of the position for the long-term target near $37 or above. Cut losses on a drop below $24.50; a similar set-up may occur down the road when (or if) the price stabilizes along the bottom of the channel again.
The Bottom Line
Big moves have recently brought about potential trades in these four stocks. The trade in Hewlett-Packard is with the trend, but the other trades are against current momentum. When buying into a downtrend there needs to more evidence than simply a strong up day; in the case of these stocks such evidence exists. Place stop below recent swing lows to limit risk on long trades, and keep the position size manageable so one loss doesn't significantly draw down account capital.