Scott St. Clair of MarketSmith joined the "Investing with IBD" podcast this week to discuss the current market and what to look for with a follow-through day. He also explained why it's important for investors to stay flexible in times of market volatility. Plus, we take a look at three potential stocks: JD.com (JD), PayPal (PYPL) and the recent IPO Snowflake (SNOW). JD stock and PayPal stock have remained resilient in the recent market correction and are potentially building new bases.
Stocks Up On Stimulus News, Tech Names Notch Gains
Stocks were up in Thursday trading as the markets reacted to speculation about a coronavirus second stimulus package. Hopes of a new deal have buoyed the major indexes, with the Dow Jones confirming the new market rally with Wednesday's follow-through day.
The Nasdaq composite was up more than 1% intraday Thursday and notched gains of more than 3.5% on the week. On Monday, the Nasdaq jumped 2% as it retook its 50-day moving average line, a key level of resistance. Gains have been supported by strong performances in the tech sector.
Tesla (TSLA) rose 4.5% and Amazon (AMZN) gained 2% in Thursday's trading action.
<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://research.investors.com..."></iframe>The Dow Jones edged higher Thursday afternoon after Wednesday's follow-through day. But IBD's The Big Picture column notes the Dow narrowly met the criteria for a follow-through day, up 1.2% Furthermore, the bullish signal occurred on a day when stocks faded off highs at the close. Typically, investors should look for follow-through days that show strength and power.
<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://research.investors.com..."></iframe>"I just think there's probably going to be a lot of volatility," St. Clair said of the current market. "If we fail off that 50-day (line) we could be looking at another leg down."
Staying Flexible To Market Signals
St. Clair expanded on the concept of the follow-through day and discussed why investors need to stay flexible in periods of market volatility.
A follow-through day is a market signal investors can use to spot the market bottom in a correction. Bill O'Neil developed the concept of the follow-through day as a more reliable way for investors to gauge a new market uptrend instead of following headlines and personal judgment.
"That's why we use the rule," St. Clair said. "You want to give the market a little bit of room to breathe to kind of find the potential bottom versus trying to guess where it's going to stop going down."
Listen to the full podcast to hear more about the follow-through day concept.
Building Bases: JD Stock, PayPal Stock Primed For A Breakout?
In addition to discussing investing psychology, St. Clair offered three potential stock ideas: JD stock, PayPal stock and recent IPO Snowflake.
JD Stock
One potential name for investors' radar is JD stock. The Chinese retailer has held up well in a difficult market. Shares of JD.com are only 9% off it's 52-week high of 86.58. JD stock has seen tightening action over the last few weeks as it looks to form a base and is up more than 5% on the week.
"Relative to the market, this stock is as high as it's ever been," St. Clair said. He also mentioned JD stock's bullish relative strength line as another positive signal for investors. "You've got three weeks tight and you've got the relative strength line almost to new highs."
St. Clair says that while investors may not have entered the stock when it broke out of a consolidation late last year, investors can look for opportunities to buy JD stock at pullbacks to the 10-week line. JD stock has rebounded from just above that key resistance level.
"The 10-week line to me is the second best way to buy stocks," St. Clair said. "If I miss a breakout on a base I'm always looking for how can I get into that name at or near the 10-week line."
<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://research.investors.com..."></iframe>PayPal Stock
Another idea for investors is PayPal stock. The electronic payments platform is another example of a stock holding up under market pressure. PayPal stock is up more than 5% on the week and has powered above its 10-week moving average. Despite the market fluctuations, PayPal stock is a little over 7% off it's 52-week high of 212.45.
"It's retaking that 10-week line," St. Clair said. "This is possibly a cup formation as well."
<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://research.investors.com..."></iframe>Snowflake Stock
One final idea for investors was Snowflake stock. The cloud-data platform went public on September 18 at 120. Snowflake stock surged to a high of 319 before dropping more than 10% on its second day of trading. Since its Nasdaq debut, Snowflake stock has formed an IPO base.
St. Clair and host Irusha Peiris say that the performance of Snowflake stock is a good indicator of the mood of the market.
"It's building this IPO base, but I am watching this stock for what I would term 'animal spirits' of the market," St. Clair said. "Are investors or institutions willing to put risk on? Because this is a kind of a risk on stock. And so as long as it holds up and acts well, then I think it gives me a little clue for the overall market environment."
<iframe class="ql-video" frameborder="0" allowfullscreen="true" src="https://research.investors.com..."></iframe>Reprinted from yahoofinance, the copyright all reserved by the original author.
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