As we start a new year, let’s look at a few stocks that are worth keeping our eye on as we venture into the next few months. The list below will be a little different than your regular recommendation list. Most lists provide a blanket list of stocks to buy. While this is good for idea generation, I’d like to take this a step further. For each stock provided, I will also provide buy indicators to look for and a seasonal forecast for the stock for the coming eight weeks.
The stocks listed here are more trade oriented. I have approached the brief discussion around each stock with a short-term horizon in mind rather than a long-term.
The selection of stocks has been presented in no particular order. As always, these are ideas and all stock involve risk.
Harmonic (HLIT) – This company engages in the design, manufacture, and sale of video infrastructure products and system solutions. It creates, prepares, and delivers video and broadband services to consumer devices including televisions, personal computers, laptops, tablets, and smart phones.
The stock trended down from October until the end of November. In December the stock showed some modest improvement in price. Out of 21 years of stock performance, the stock has risen by 19.1% in the first 8 weeks of the year. Given the data, historically, this shows a probability of 80%. The stock has a strong seasonal bias in the first two months of the year. With that said, if the market falters, don’t expect this stock to buck the trend. If the market is flat or rises, then HLIT will be in an environment for it to show its seasonal strength. Right now I want to see the stock show some positive price movement with above average volume.
Plan – The stock trades at $5. This means, even small movements can be sizable percentage shifts. The average gain of 19.1% means about $1 gain from where it stands today. I would focus more on how the general market is moving. If the market shows strength as we start 2017, it would reinforce the ability of HLIT to act as is its historical norm in the first 2 months of 2017.
MRV Communication (MRVC) – The company designs, develops and sell products and services that enable customers to build reliable, scalable and cost effective networks. The company products and services are developed to meet the needs of telecommunications service providers and cable operators, data center operators, government entities and enterprises.
The stock has had it pretty rough lately. An earnings miss at the start of November sent the stock crashing from the $11 to $7 range. Since that period, the stock has run into the low $8’s and for a moment flirted with hitting $9. The big question right now is, whether or not the strong sell off in early November was really an overreaction by the market. If we take that narrative, then the stock likely has some room to run. Seasonally, the first 8 weeks of the year based on the 23 year history of the stock has been a good period. The average return is 13.9% in the first 8 weeks. This seasonal trend could be additionally benefited if our overreaction narrative holds true.
Plan – The stock’s chart looks pretty good. In the last week it has trended positive and the volume level even increased (historically a very slow trading week). It remains above its 5 day moving average and the price is moving towards the 50 day moving average. Continued positive price action and volume would add to the bullish case.
Allscripts Healthcare Solutions (MDRX) – The company engages in the provision of clinical, financial, connectivity, information solutions, and related professional services. It operates through Clinical and Financial Solutions, and Population Health segments. The Clinical and Financial Solutions segment involves in the sale of clinical software applications and financial and information solutions.
MDRX is entering into a very historically positive period for the stock’s price performance. Over 17 years the stock has averaged 13.4% over the first 8 weeks of the new year. The stock’s recent sell off since October could also assist in a relief rally. The stock trended down in the last week of the year. This could be partially caused by sell orders occurring because investors wishing to lock in losses for tax purposes. We’ll have to wait to see if the stock reverses course starting next week.
Plan – The stock’s price needs to break and close above $10.60 – $10.75. This would indicate that the sellers have been over taken in the short-term by the buyers. This would put the stock above it’s 5-day moving average and give credence to the seasonal trend of positive movement in the first 8 weeks of the year.
Gold (GLD) – The commodity gold.
GLD has been tending down since the fall and technically for the majority of 2016. Recently it has started to move higher…slightly. Is the sell-off overdone and are we in a period where at least some form of relief rally could be in play? Maybe. In the last 12 years gold has risen on average 4.7% in the first 8 weeks of the year. The first couple of months for gold show this pattern. This would be an appropriate time for a small rally to occur. The sell-off could attract ‘value’ investors looking at the beginning of the year as a time to reallocate their holds. Since gold has sold off strongly in 2016, the lower prices might entice them to load up.
Plan – If the recent strength off the 5 day moving average continues, then the buying argument exists. Strong volume will also back this argument. If any form of fear exists in the markets, then expect gold to jump and jump fast. If you want to get more aggressive leveraged ETF’s are available, such as UGL (2x) and UGLD (3x).
CF Industries (CF) – This company manufactures and distributes nitrogen fertilizer. In its operations, it owns and serves agricultural and industrial customers through its own distribution system.
The stock has followed the market’s bullish trend since early November. Right now it is trading near $32. This price is important because the $32 range is a point of resistance. What that means is that back in June the stock popped up to $32 and then took a dive lower. Around the $32 level a bunch of investors bought. Since it’s now back near that range, you’re likely to see many of those investors that have been burned since June look for the exit. Thus, $32 is an area where the potential for a good deal of selling pressure exists. If, the stock vaults above $32 with a few day above +$32 and trading volume at or above that level, then the bullish case for the stock remains.
In the next 8 weeks, the average increase in this stock’s price over 11 years of performance data is 17%. Seasonally, this is a bullish period for the stock.
Plan – If the stock can close +$32 and do so with average/above average volume, then the door is open for a move to be made. Otherwise, don’t get in the water.
Walt Disney (DIS) – Does this company need an explanation? The company is a family entertainment and media enterprise operation. It has five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive Media.
DIS has experienced a very strong run since early November, but before that it experienced a decline from highs reached in May. Right now the stock is close to hitting the May high, which would place it at a point of resistance. The high in May was +106 and the stock is currently at +104. Therefore, even though the stock’s performance has done really well in the short-term, it’s only back to where it was in May of ’16.
The period of the first 8 weeks of the year is seasonally bullish. Out of 32 prior years worth of data, the stock has risen by an average of 9.6% in the first 8 weeks. By my calculations, if the stock plays to its average, we are looking at Disney hitting around $115 in the next two months. This means it would break through the $106 resistance band and be in a more open window for stock price growth.
Plan – You can play this aggressively or conservatively. The conservative approach would be for DIS to break through $106.70 and then look to establish a position. This would demonstrate that buyers are strong enough to punch through the band of selling resistance that exists around the prior 52 week high.
The more aggressive approach would be to wait to see if the minor pullback is truly minor or part of a larger downward trend. If the stock makes a positive move in January above $105, then the open presents itself.