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6 Hot Stocks on Traders’ Radars - views
BALTIMORE (Stockpickr) -- Forget the traditional ways of generating investment ideas. Instead, let the crowd do it for you.
From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It’s a concept that’s known as “crowdsourcing,” and it uses the masses to identify emerging trends in the market. While crowdsourcing has long been a popular tool for the advertising industry, it makes a lot of sense as an investment tool -- after all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.
While some fund managers are already trying to leverage social media resources such as Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for traders who want a starting point in their analysis.
Today, we’ll leverage the power of the crowd to take a look at six of the highest-trending stock searches on Google.
Here’s a look at how these most-searched names are trading technically.
Nearest Resistance: $28
Nearest Support: $24
Catalyst: Store Closures, Earnings
Tech retailer Best Buy (BBY) is struggling today, pushed lower by news that the firm is taking drastic steps to right its business. The firm posted a loss of $1.7 billion for the fourth quarter, dipping dramatically lower from last year’s fourth quarter on significant restructuring costs.
CEO Brian Dunn announced the firm will be closing 50 stores as part of its restructuring and will be testing new formats in two cities to better compete with online rivals. The commoditization of tech retail is eating into Best Buy’s business in a big way.
As painful as today’s 7% pullback may be, it’s not a technically significant price move. Shares of BBY are still sitting above support at $24, and they’re still actually up on the year.
Best Buy isn’t really in the danger zone until shares break below a more critical support level at $22.50. While it makes sense for traders to wait for consolidation before buying, shareholders don’t need to panic just yet.
Nearest Resistance: N/A
Nearest Support: $54
Catalyst: Positive Earnings
Meanwhile, software firm Red Hat (RHT) is rallying hard today following a fifth-straight quarter of earnings that stomped Wall Street’s expectations. Red Hat is up more than 18% as I write, following earnings of 18 cents per share for the fourth quarter.
The firm is riding a major trend as datacenters upgrade their infrastructure, much of which runs on Red Hat’s eponymous Linux distribution. The firm has a very unique model among software makers, but essentially, as more enterprise boxes sport Red Hat in the next few years, RHT should continue to see subscription cash flow in.
Technically, the breakout in RHT today is a big deal; the move is pushing Red Hat to test five-year highs in today’s session. Making new highs is significant from an investor psychology standpoint because it means that everyone who has bought shares in the last year is sitting on gains. As a result, the “back to even” mentality is less of a concern than it would be for a name with a higher proportion of shareholders sitting on losses.
For late-to-the-game buyers, I’d recommend sitting on the sidelines until RHT pushes above today’s high water mark.
Red Hat shows up on a list of 15 Best Stocks at Top-Performing Mutual Funds.
Nearest Resistance: $55
Nearest Support: $50
Catalyst: Hostile Takeover
Genetic analysis firm Illumina (ILMN) is another name that’s getting a lot of search volume today, following news that Swiss pharma giant Roche Holding (RHHBY) was increasing its offer to acquire the firm up to approximately $51 per share. At this point, Illumina’s board is still mulling over the offer, which has helped to propel shares by more than 70% so far in 2012.
The fact that Illumina is currently trading above Roche’s offer price means that traders are pricing in the possibility of another hike in the sales price for ILMN. So far, Roche’s buyout approach has been hostile -- ILMN hasn’t been negotiating the sale of the firm, so Roche is making the cash offer directly to shareholders.
I would recommend against trying to trade ILMN technically at this point; supply and demand are driven by Roche’s checkbook right now.
I also featured Illumina recently in "5 Uptrending Stocks That Could Pop."
The Shaw Group
Nearest Resistance: $32.50
Nearest Support: $29
Catalyst: Positive Earnings
Energy and chemicals firm The Shaw Group (SHAW) is another earnings-driven name that investors are searching for today. The $2.1 billion firm reported profits of 78 cents per share for the second quarter, compared to profits of just a single cent in the same quarter a year ago. The news is sending shares of this firm up mid-single digits in this afternoon’s trading session.
From a technical standpoint, Shaw is currently forming an if/then setup thanks to sideways consolidation in shares with resistance at $32.50 and support at $29. Wait for SHAW to break outside of that range, then take a position in the direction of that breakout.
With share prices testing the upper end of the range, it could happen sooner rather than later.
Shaw shows up on a list of 10 Best New Stock Ideas by Steven Cohen for the most recently reported quarter.
Nearest Resistance: N/A
Nearest Support: $23
Catalyst: Earnings, Dividend Hike
Luxury watchmaker Movado Group (MOV) is up close to 10% today following the firm’s fourth quarter earnings call. Net sales increased more than 20% year-over-year, helping the firm to swing to a profit of 42 cents per share for the quarter. It also spurred a 40% increase in the firm’s quarterly dividend payout, driving it to 5 cents per share.
Movado broke out above previous resistance at $23 following the numbers, pushing to a new 52-week high. For the same psychological reasons that make Red Hat’s breakout to new highs bullish, traders should be taking a second look at Movado right now.
That said, I’d recommend waiting for this firm to make a base before building a position.
Nearest Resistance: $16.40
Nearest Support: $14.40
Catalyst: Product Changes
Last up today on our list of most-searched stocks is Yahoo! (YHOO), ironically a search giant itself. Yahoo! has been getting plenty of attention in the last year, grabbing headlines through everything from management shakeups to M&A rumors to product shakeups. Today, product shakeups are driving attention in this $19 billion web company --Yahoo! announced this week that it would be shuttering its Yahoo Meme microblogging service. Management also announced that they’d be offering users the option to opt-out of tracking for advertising purposes.
Yahoo! has been stuck in a channel for most of the last six months, trading sideways while investors try to work out what to do with this stock. While one could argue that getting rid of tertiary offerings will give Yahoo! more time to focus on generating ad revenues, this stock isn’t doing much technically at this point. While the technical setup is similar to the one in SHAW, it’s not as immediate.
I’d recommend waiting for YHOO to break outside of the $14.40 to $16.40 range before trading shares.
To see these stocks in action, check out the at Most-Searched Stocks portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.