The first quarter comes to a close on Friday afternoon after posting a dramatic recovery off the fourth quarter's deep corrective lows. The second quarter is likely to generate new leadership that surprises the majority of market watchers, just as it did in the past three months. However, it's also logical to assume that the first quarter's top stocks will continue their winning ways, even if the broad market turns lower in the coming weeks.
Even so, the majority of first quarter price patterns have carved proportional retracements that have failed to complete bounces back to last year's rally highs. More importantly, bearish volume divergences expose limited buying interest in these issues, which makes sense given continued fund outflows by retail investors. This underlying weakness could trigger steep downturns in the second quarter, shaking out overly complacent shareholders.
The three stocks chosen as second quarter picks have failed to follow this bearish archetype, either by posting new highs or attracting healthy buying interest not fully reflected in current price action. However, all are overbought in one or more time frames, suggesting a predatory approach that remains on the sidelines, waiting for a pullback or breakout above key resistance before getting on board.
Amazon.com, Inc. (AMZN)
Amazon.com, Inc. (AMZN) has retraced about 70% of 2018's fourth quarter decline, remounting the 200-day exponential moving average (EMA) in March after an October breakdown. First quarter buying interest has matched price gains tick for tick, with just a small deficit left before the on-balance volume (OBV) accumulation-distribution indicator makes a return visit to the September peak. It's also the only FAANG stock well positioned to test last year's high.
The stock is trading just above the .618 Fibonacci sell-off retracement level at $1,750 after a breakout above that barrier last week. It now looks set to rally up to the .786 retracement level at $1,900, which also marks resistance from October's double top breakdown. Amazon stock is likely to test new support at the 200-day EMA, either now or after it reaches the .786 level, with both scenarios offering an opportunity to pick up exposure at a lower cost.
Duke Energy Corporation (DUK)
The Dow Jones Utility Average quietly lifted to an all-time high in the first quarter, in a flight to safety triggered by growing odds for an economic downturn. Duke Energy Corporation (DUK) isn't the sector's strongest component but is well positioned to break out above multi-year resistance in the second quarter and rally into the triple digits. It also pays a healthy 4.10% forward annual dividend yield, adding icing to the cake.
The stock topped out at $83.37 in 2001 and entered a downtrend that found support in the low $20s in 2003. It finally completed a bounce back to the prior decade's high in 2015 and reversed once again, easing into a triangular pattern that's still in force more than four years later. First quarter price action has carved a rounded handle that has completed a cup and handle within the larger-scale pattern, setting the stage for breakout that targets $111 as a measured move.
Xilinx, Inc. (XLNX)
Chip stocks turned south in 2018, dropping sector funds to multi-year lows. The group has made a dramatic first quarter recovery, but most components are still trading below their 2018 peaks and could reverse in the coming weeks. Xilinx, Inc. (XLNX) is likely to defy this force of gravity, lifting to the top of the sector leadership board after January's powerful breakout above the 2000 high at $97.50.
The stock added 30 points into March and dropped into a sideways pattern that is still in force at quarter end. Xilinx is overdue for a pullback, but the 50-day EMA rising from $116 should contain the downside, offering a potential low-risk buying opportunity. It's wise to hit the sidelines if that level breaks because the gap under $100 could then act as a magnet. Conversely, a rally above $130.57 would set off a bullish but higher-risk buying signal.
The Bottom Line
These stocks should perform well in the second quarter, continuing their winning ways after a tough 2018.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.