Adobe (ADBE) solid fundamentals should help it here.
AMC Entertainment (AMC) stock fans will try to bounce it again.
Fiverr (FVRR) stock support zone is bankable for now.
Source: Spyro the Dragon / Shutterstock.com
The indices last week suffered a small setback on the hands of the bears. The heaviest of the losses were in the large cap stocks. Today we will focus on relatively smaller companies who have fallen on hard times of late. In essence we are trying to find opportunities in stocks to buy on dips. I consider these tactical scenarios, not investment ideas.
Except for one of them, I am not so terribly confident of their long-term successes. However, the trading opportunities that exist in their stocks now is as legit as charts would suggest. But before we can proceed with the specific opportunities, we must acknowledge the threats that exists for the whole market.
Nothing will rally if the indices are correcting amidst a flurry of headlines. We have had a few doozies that could change the outlook of all stocks around the world. The situation in Ukraine has not improved at all, which makes it now even more complicated. Global leaders are nowhere near coming to a resolution anytime soon. Therefore, the uncertainty is likely to linger for months, thereby negatively affecting stock prices across the board.
In such an environment I shy away from starting large investment positions that require a lot of conviction. Instead I focus on strategic trade opportunities that are more shorter term in nature. This way with the use of proper stop losses, investors can limit the amount of damage from extrinsic corrections.
None of these stocks to buy today will do well if the indices crash. They don’t trade in the vacuum, so an overall equity sale will drag them just as well. The theme that they have in common is that they are simply falling into support. The assumption is that it will hold one more time to serve as a base for rebound rallies.
Therefore, the prime rule of this game is stopping out if the support fails. It is also equally as important to know when to book profits if they come on a rebound. When uncertainty is this high I force myself to book much faster than I would under normal circumstances. Overstaying our welcome in profitable trades is a luxury we cannot afford these days. Now onto the three stocks to buy into support:
Source: Charts by TradingView
Adobe (NASDAQ:ADBE) is a high-tech stock that needs no introduction. Management has done a great job growing the business without any major hiccups. With an average growth around 20% per year, the critics will have to dig deep to find fault in that. They even managed to do so profitably as net income grew four folds since 2016. That is an impressive feat that gives them some benefit of the doubt on Wall Street.
Statistically, the stock is not cheap with a 43 price-to-earnings (P/E) and a 13 price-to-sales (P/S). Although there isn’t a lot of bloat in that, value is not the argument to include it in a list of stocks to buy on dips. ADBE stock rallied more than 80% out of the pandemic breakout. It has since given back 40%, and it is testing the support from March of 2021.
Most recently, Adobe stock bounced sharply on March 14 and again nine days later. The bears are pushing it back to it, and my assumption is that it will hold one more time. If that’s the case, then the rally back could extend to $510 per share. There would be tremendous resistance at $470 but not unbeatable. Eventually the algos can retrace the Fibonacci levels to deliver a 20% rally.
Earlier I noted the importance of setting stop losses, and this one would be upon losing the $400 mark. Even though I have confidence in the business, I don’t want to test where the next support lies. There’s just too much open air below $400 for me to risk finding out how deep. Investors who seek to own it for the long term should note the risk of losing the support. Therefore they should at best only engage with partial positions to start. This is also not the time to add to current risk.
AMC Entertainment (AMC)
Source: Charts by TradingView
My second pick of stocks to buy on dips today will shock those who know me. That’s because they know it is definitely not my favorite company. AMC Entertainment (NYSE:AMC) stock’s statistics in the last two years are shocking. I hold high regards for the bulls and their dedication to defending the stock. In fact, they are the reason for my thesis this week. Even though I think they are on their back foot now, I bet they have something to prove.
My bullish thesis comes from their resolve, and that they will once more stop it from losing support. Recently, AMC bounced and rallied 160% on the heels of a rip from GameStop (NYSE:GME). Sadly they have given up 45% of it almost just as fast. The zone below $16 per share should provide support one more time. The swing trade opportunity that could start this week is to buy the dip for a chance for another spike.
If there was a stock with which I need to use stop losses on it would be this one. The loss of $13 per share could prove too costly for the bulls. If that happens, it is likely that AMC could be in the single digits. I’m hesitant to put those words on paper fearing the backlash in social media. My intentions are not to upset the stock’s fans, but rather to try and find trading opportunities in a volatile stock. This is most definitely a trade and not an investment under any circumstances for my portfolio.
Source: Charts by TradingView
Fiverr (NYSE:FVRR) doesn’t have as high a profile as our second pick of stocks to buy today. However it definitely has a better profit and loss statement going for it. Sadly, it now belongs to a group of stocks that are out of favor on Wall Street. Those are the ones with hyper growth, but also expanding losses. I’ve seen this before, and they eventually snap out of it. Until then, the rallies will be few and shorter than normal.
The fundamentals for FVRR stock are not bad. Especially since they generated $38 million in cash from their operations in 2021. This lessens the need for them to borrow under the threat of rising rates. The reason for my optimism is to bet that the March support will hold one more time. If so, the rally back could be violent, maybe even targeting $130 per share. I know this sounds ridiculous to forecast the doubling in the stock. But we’ve seen more shocking things happen since the start of the pandemic.
It’s all about the charts for me in this batch of three stocks to buy on dips. FVRR is no different and also relies on the self-fulfilling prophecy that the machines will hunt. But the first step is to hold support, therefore the last step would be to exit if the support fails. Below $55 per share this trade would not work at all for me. Even though the stock is not extremely expensive at eight P/S, it’s definitely not a bargain. If the markets are correcting, the last thing investor would seek is an investment in opportunities like these.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Nicolas Chahine is the managing director of SellSpreads.com.