Last week, the broader market Indices hit another new high on Thursday before pulling back into Friday’s close. Not all areas participated, however, as the recently explosive move into AI stocks ran into trouble later in the week. Instead, many of last week’s top performers were down-and-out stocks that are now in the beginning stages of reversing their downtrends.
Just take a look at the top performers in the Dow Jones Industrial Average, which posted a 1.5% gain for the week vs a flat finish for the Nasdaq. Among the winners were Cisco (CSCO), McDonalds (MCD), and Nike (NKE) which are each trading well below prices from earlier this year. Last week, they averaged gains of 3.5%, yet they still have work to do before regaining their uptrends.
Below are two stocks that are further along in their downtrend reversals; however, one has more positive characteristics that point to further upside, while the other has more work to do. Let’s review.
Daily Chart of MasterCard (MA)
As you can see in the daily chart of MasterCard (MA) above, the stock has closed the week back above its key 50-day simple moving average. The fact that this move above resistance occurred on heavy volume is quite constructive, as it indicates possible institutional sponsorship.
Other positive factors are at play as well, such as the fact that the RSI is now in positive territory. In addition, the seasonality for Mastercard is positive, as the stock has gained in the month of July — 1 week away — each of the last 10 years. However, while the MACD has posted a bullish crossover, with the black line up through the red, it remains in negative territory.
Daily Chart of Hilton (HLT)
Hilton (HLT) is another stock that’s entering a seasonally strong period. The stock began its downtrend reversal in mid-June, with the RSI turning positive as the stock closed above its 50-day moving average. In addition, the MACD turned positive at the same time, which provided further confirmation. Perhaps most important, however, is that Hilton announced an expansion plan that will double the number of their “lifestyle” hotels over the next four years.
The expected growth pushed the stock higher so that, last week, HLT entered a strong buy zone after breaking out of an 11-week base on volume. Also highlighted above is the early May downtrend reversal attempt, which was not confirmed by a positive MACD, nor was there positive news regarding growth prospects.
While much of my work involves spotting high growth stocks that are advancing toward base breakouts, downtrend reversals, such as Hilton (HLT) above, play a key part as well. Vertex (VRTX) is a prime example, as the stock was added to my Suggested Holdings List in early May as it began a new uptrend amid news of a new non-addictive pain medication.
A move above key resistance that’s confirmed by a positive RSI and MACD, coupled with bullish corporate news, can yield some top performers. While Mastercard (MA) is interesting, the stock still has work to do before gaining my confidence.
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Warmly,
Mary Ellen McGonagle, MEM Investment Research
Mary Ellen McGonagle is a professional investing consultant and the president of MEM Investment Research. After eight years of working on Wall Street, Ms. McGonagle left to become a skilled stock analyst, working with William O’Neill in identifying healthy stocks with potential to take off. She has worked with clients that span the globe, including big names like Fidelity Asset Management, Morgan Stanley, Merrill Lynch and Oppenheimer.
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