The S&P 500 continues to edge higher, pushing to a new intra-day high at $183.01 on light December 24 trading. With the rally expected to continue till the end of year--as there are no signs of it letting up just yet--trading strong stocks in strong sectors remains the prudent play, as outlined in Industrial Stocks Looking Strong Into Year End. For those with more of an appetite for potential volatility, the following four stocks have been very strong recently, presenting opportunities for more upside, as well some warnings signs.
Himax Technologies (Nasdaq:HIMX) was trading near $3 at the start of year, but has been pushing aggressively higher, recently putting in a $13.70 high. That high is very close to a 100% Fibonacci extension target, making $13.70 to $14.00 an area likely to pose resistance. While the price could continue higher, waiting for a pullback to enter is the higher probability strategy. An entry point between $11 and $10.30, with a stop near $9, sets up a target of $16.00 next year. The trade requires some patience, as buying near these highs doesn't offer an ideal place to put a stop-loss. Short-term trades can trade volatility in both directions, as the stock has been regularly moving in excess of 4% per day.
T-Mobile (Nasdaq:TMUS) aggressively surged this week, and late last week, pushing to a new $32.42 high. Moving close to $5 over the last four trading days means there still could be more buying in the near future. Although, December 19 saw the biggest jump, with the three following days seeing progressively smaller rallies. While this doesn't necessarily indicate a reversal, it does point to a likely slow down. The price rally is largely due to news of a potential buyout (reference 1), which makes the stock risky at this price for longer-term traders if the deal falls through. The overall trend is up though, so regardless of what news may come, waiting for a pullback between $29 and $27 is more appealing if planning to hold the stock for several months. Ample recent volume and a daily average range of more than a $1 per day will appeal to short-term traders.
Oracle (Nasdaq:ORCL) been trending higher since bottoming in June, but only over the last few trading sessions did the price break above $36.50 and out of the range it has been trading in since early this year. $36 to $36.50 should now provide support on pullbacks; if the price falls below $36 the range could continue. The trendline currently insects near $34 though, so if a deeper pullback develops and this area provides support, it too is a good buying area with a stop below $33. The recent high of $37.38 is near the 100% Fibonacci target, and therefore the price is likely to encounter resistance in this area. The target for the breakout from the multi-month range is $39.50 to $40.50.
Groupon (Nasdaq:GRPN) was trading below $9 at the start of December, and has since rallied to an intraday high of $11.95--a greater than 30% jump in less than a month. After declining from September to November, this December rally appears to be the first leg in a new uptrend. The next upside target is near $12.30, where the price is likely to experience resistance and quite possibly a pullback. If that pullback develops buying the stock between $10 and $9, with a stop below $8.50, sets up a target for $13.50 to $15. It's a patience play for medium to longer-term traders, but lots of volume and greater than 2% moves a day also makes it a good for candidate for short-term traders to ride these waves higher while they continue.
The Bottom Line
The major stock indexes remain in an uptrend, and while there is always the potential for a reversal, price hasn't yet shown signs of weakness. Trading in strong stocks and strong sectors is the ideal strategy for most short to medium term traders. Short-term traders can also seek out other opportunities such as these, in stocks with greater volatility and the potential to trade both the long and short side. Stops should be used to control risk, and trades should ideally be in the direction of the trend.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.