Markets struggled again on Wednesday through the release of the Federal Reserve minutes. This is after a red day prior, and that’s rare these days.
The assumption is that they will indeed taper around this year. Investors perhaps were looking for clues to say otherwise, but they didn’t get them. Regardless, equities are still close to all-time highs. So overall, the bulls are in charge.
The bears, on the other hand, are all waiting for the correction to start. They are both right, but neither can know “when” that will be. Meanwhile, there are many short-term opportunities available. That said, here are four top stock trades for Thursday.
Top Stock Trades for Tomorrow No. 1: Krispy Kreme (DNUT)
This is the second go at the public market for Krispy Kreme (NASDAQ:DNUT). And it’s been rough to say the least. DNUT stock stumbled out of the gate in a terrible way. It fell 37% from day one high to yesterday’s low.
They reported earnings on Tuesday, and investors are trying to recover some footing. Now those efforts will face heavy selling at every ledge they tried to hold. The first order of business for the bulls will be to stop making new lows. This places focus on $13.60 or ideally Tuesday’s close of $14 per share.
The descending channel for active traders is clear. This bounce if it hold can reach $15, but I would expect sellers there. If they only give back no more than 50 cents, the bulls can punch through. Then, they face the mucky $15/$16 resistance zone. Short term, it will be tough to punch through that.
Overall, time is the ingredient that they will really need. Most importantly, they also need to hold progress. Losing $14 again would deflate the rally effort. Add to this the pressure that the indices are feeling, and it’s going to be tough. Traders of DNUT stock have to be nimble and stop out fast, while investors must be patient and not all in.
Top Stock Trades for Tomorrow No. 2: VanEck Vectors Semiconductor ETF (SMH)
The overnight reaction to earnings is binary. It’s mostly due to sentiment not actual facts. Most earnings reports have been strong, yet the reactions are so-so. Nvidia (NASDAQ:NVDA) reported earnings tonight, and it will influence the VanEck Vectors Semiconductor ETF (NASDAQ:SMH).
With a bit of luck, this could fuel the SMH to trade back to the top of the channel. That would amount to a 5% rally, but it will face resistance lines along the way. The short-term busy volume zone is around $261 per share. There are sellers lurking there. The next level to fret would be $5 higher.
Nevertheless, the opportunity is real and all it needs is a spark. Conversely, if $254 fails, then there will be pain. The downside consequence from that could take SMH stock to its base near $246. Overall, the bulls are in charge, so there is plenty of support through $242. Long-term, that is a critical line to hold, but that requires markets to correct — not just the SMH.
Top Stock Trades for Tomorrow No. 3: United States Steel (X)
United States Steel (NYSE:X) stock is facing a big breakout opportunity. The $30 line has been in contention for ten months. There were two big battles there on May 10 and last November. The bears won those, but here are the bulls trying again.
If they can take that out, the upside potential can be more than 30%. There would be resistance zones along the way, but it’s worth trying. If the bears win again, it won’t be game over. Just as there is resistance, there are buyers lurking below.
After a fade, the bulls can remount the effort from near $25 per share. They would then take another stab at it. As long as they are doing this from higher lows they will eventually succeed. The pattern is bullish and resembles a cup and handle, they just need a trigger. Fundamentally, I can’t vouch for similar excitement with inconsistent revenue growth.
Top Trades for Tomorrow No. 4: Brinker International (EAT)
Brinker International (NYSE:EAT) initially fell hard on the earnings report. Once again, the metrics were just fine in absolute terms; It’s the expectations that were off. Wall Street has a bad habit of punishing a stock based on wrong pretense. This is where today’s opportunity came in.
EAT stock Wednesday fell into a long-term pivot zone. These usually provide support to the price action. In fact, the buyers stepped up and it bounced from the $48 overnight low to almost $53 per share. That is a very wide range for a strong report.
The area around $45 served as the base for a 65% rally late last year. The bulls are not going to give it up that easily. The opportunity is riding it back up, but with realistic expectations. The indices are near highs, so there could be downsides from that. Also, there are resistance levels in EAT stock at $54, $56 and $60 to name three. The trade would be real as long as the floorboard holds.
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.
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