January has been a great month for equity investors. Lots of stocks have bounced back. I shared a conservative Large cap portfolio on Jan 03 and it’s also up 9%. It is such a welcome relief to see some great moves and with every passing day, the confidence seems to be coming back. After a long time, the market is buying bad news. Next week, US Fed will meet to signal what it intends to do this year and it can be disruptive but if the market rallies even after that, there will mad rush to buy equities. If you have been out of the market for a long time, then the time has come to get back and at least make some trades and see how it goes.
In this article, I am going to share some Large cap textbook trades that worked and also where new opportunities are popping up.
Trip.com
If you remember, in the month of Nov, lots of Chinese in China protested against the strict lockdown and the Chinese Govt relented and relaxed covid restrictions. This created enormous interest in Chinese stocks. One of the obvious beneficiaries was Trip.com. Something else happened too in December when the Chinese Govt decided to provide audited documents of companies to the US regulators. This reduced the delisting risk and Chinese stocks started surging higher.
TCOM stock had rallied 50% between the end of October and early Dec. The stock did a Gap up above the resistance of 30 levels. It was a perfect textbook opportunity. The buy signal at 32 around early Dec has resulted in 23% gains. China has seen a dramatic recovery in travel and this stock would continue to be buy on dips.
Tencent Music TME
Speaking of Chinese stocks Tencent Music TME also made a big Large candle move above 200 dma and changed the trajectory of the stock. The trade is up 63% over the last 2.5 months.
Most of the stocks have not turned around or changed trends. Even though rallies have been sharp, they have been mostly to the point of resistance. It is only when stocks break out, they outperform by a wide margin. My objective would be to share stocks that are moving away from the pack because if the market turnaround, they would hold some of their gains during the market down days.
Example: The Boeing Company BA
Boeing stock rallied from 120 to 170 between June and August but only to sell off again by Sep end. The stock then again rallied back to 170 and this time crossed above it. It was a simple resistance breakout and the stock did consolidate for a few days before moving higher to 210+. It’s a 30% move
General Electric GE – Simple Resistance Breakout and 200 dma
GE stock first rallied from 50 to 68 and broke past 63. The stock then pulled back to 63 and even slipped to 200 dma. It then bounced from 200 dma and triggered a buy signal around the middle of Dec. The stock is now at 83+
Shopify breaks out
Stocks need a trigger to break out. Shopify used to bounce to 42-44 levels but then used to sell off. Now, in the month of Jan 2023, the company increased subscription prices and there was a Gap up that resulted in a breakout. The stock can easily rally t 73+ levels as long as it holds 40 levels. The ideal price to buy the stock was 44 when the Gap happened.
Cleveland Cliff CLF – The Gap up on fundamentals story
There are stocks that Gap up, consolidate, and then run away. CLF did the Gap up in Dece on news of an increase in steel prices and lower unit costs. The stock consolidated for a few days before taking off. I covered the stock back then and it has been one great trade.
Caterpillar CAT – Gap up and runaway
Now the question arises where are the new opportunities in the large-cap space. Keep an eye out for the next update
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
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