U.S. stocks seem to have returned to normal. A two-and-a-half session sell-off has been followed by a rally of equal length. While broad market indices remain modestly off their highs, it does seem like stability, at least, has returned heading into 2020.
In that context, the question at the moment is whether there’s enough time, and enough optimism, for one more leg higher before year-end. And that question is of particular importance when looking at Friday’s big stock charts.
All three stocks have missed out on at least part of this year’s rally. And all three big stock charts show at least the potential for a breakout in the near-term. It will take some outside help, however — with stronger broad market sentiment the simplest source at the moment.
Advance Auto Parts (AAP)
So far, 2019 has not been kind to Advance Auto Parts (NYSE:AAP). AAP stock actually has declined a bit over 3% this year, making it one of just 81 stocks in the S&P 500 in the red for 2019. The first of Friday’s big stock charts suggests the news could get worse — but there’s hope for a reversal:
- The exit from an ascending triangle pattern last week generally is a bearish move, and indeed AAP stock saw a small gap down on Tuesday. It seems likely that $154, which formerly acted as support, is reversing to resistance. That, too, suggests a negative outlook.
- That said, AAP has found its footing in the past two sessions, with modest declines on heavy buying. There are buyers willing to step in at the moment. And if AAP can find a way to grind higher, there is some reason for bullishness. $154 could again act as support. Moving averages will come in.
- From a broad perspective, this simply is a stock still looking for direction. That’s true looking at 2019 trading and going back to early 2016. With some bullishness toward the sector and/or broad markets, the stock’s direction could reverse.
- The concerns might be both valuation and the lack of a catalyst. AutoZone (NYSE:AZO) reports earnings next week, and good news could read across to both AAP stock and rival O’Reilly Automotive (NASDAQ:ORLY). But AZO stock has a similar valuation to AAP, and Advance Auto Parts earnings last month disappointed. Good news from AutoZone might lead investors to buy AZO moreso than AAP. So while there’s potential for an upside reversion in Advance Auto Parts stock, this may be a 2020 story without a significant year-end market-wide rally.
The setup is there for Chinese streaming video play iQiyi (NASDAQ:IQ). If IQ stock can rally, the second of our big stock charts shows a path toward a breakout:
- There’s clear resistance from a near-term standpoint. IQ stock twice has stalled out at $20 in recent months. The broader trend is still modestly negative. And the 200-day moving average sits right at current levels. But if IQ stock can move above $20, the trend will look positive. The stock would make a bullish exit from a narrowing wedge. It would have cleared all three moving averages, and broken out the downtrend that has held since May.
- All that said, a reversal is possible as well, given the multiple trendlines creating resistance. A reversal likely would move the stock back toward support around $17.
- As I wrote this week, the swing factor might be the broader market. As I noted in October, IQ stock has somewhat missed out in the rally in Chinese stocks due to a reticence by U.S. investors to pay up for unprofitable companies. Shares still have lagged the likes of JD.com (NASDAQ:JD) and Alibaba (NYSE:BABA), both of which have reached 52-week highs in recent weeks. Investors are willing to take on China risk. If they’re back to taking on growth stock risk as well, a breakout looms for iQiyi stock.
Crown Castle International (CCI)
Celullar tower real estate investment trust Crown Castle International (NYSE:CCI) has struggled since reaching an all-time high in September. But CCI stock has righted itself over the last month, and the last of Friday’s big stock charts shows hope for a rebound:
- CCI stock is in the middle of a downtrend at the moment — but it’s also in the middle of a narrowing wedge. A move through the 50-day moving average would challenge a key pivot point at $138, and set shares up for a bullish exit. The trend certainly isn’t confirmed yet, but a continued near-term rally could set up a breakout that would re-test September highs.
- Meanwhile, valuation is reasonable. The stock trades at 22.7x the midpoint of 2019 guidance for adjusted funds for operations per share. Looking to 2020, the multiple drops closer to 21x. A 3.56% dividend yield adds to the case, particularly in a low interest rate environment and with the payout hiked 7% in October.
- It may be the sector, and 5G stocks more broadly, that define the near-term direction of CCI stock. Perhaps surprisingly, 5G plays have struggled of late. Qualcomm (NASDAQ:QCOM) has reversed since earnings. Nokia (NYSE:NOK) plunged after its Q3 report. And rival American Tower (NYSE:AMT) has a similar chart (and perhaps stronger hopes for a breakout from a descending triangle), though a higher valuation and lower yield. If bullishness toward 5G returns, the chart sets CCI up to be a prime beneficiary.
As of this writing, Vince Martin has no positions in any securities mentioned.