U.S. stocks are not slowing down as 2020 nears. All three broad market indices once again reached new highs on Thursday. The S&P 500 has gained more than 29% so far this year. The NASDAQ Composite cleared 9,000 for the first time on Thursday.
With the geopolitical situation calm and impeachment apparently stalled out, there’s seemingly little resistance ahead at the moment. That’s not the case, however, for Friday’s big stock charts.
In fact, resistance is the theme of these big stock charts. One of these names already has faltered and is trying to rebound. The other two are looking to re-take past highs. But the common thread is that all three of these stocks are looking for a breakout in the midst of a broad market that continues to rise.
Wynn Resorts (WYNN)
When we called out Wynn Resorts (NASDAQ:WYNN) in 3 Big Stock Charts at the beginning of November, the stock looked set to stall out. That turned out to be the case, as shares sputtered for several weeks. But two pieces of positive news have changed the outlook — and the WYNN stock chart:
- Wynn shares first jumped on Dec. 12, as China announced plans to make Macau a key financial center. WYNN stock gained 9.5% on that news, as investors saw the news as driving demand for Wynn properties in that Chinese enclave. Six days later, the central government delivered more good news, increasing the daily limit on remittances from the mainland, and WYNN again gapped up.
- On their own, neither of those developments seem to move the needle. But they add to the sense that Chinese leaders see Macau in an increasingly positive light amid protests in Hong Kong. Central government policies have impacted gaming revenue and stocks of casino operators in the region; anti-corruption measures interrupted growth earlier this decade, and WYNN still trades 40% below early 2014 highs.
- The twin jumps allowed WYNN to break out of a usually bearish descending triangle. Moving averages have been easily cleared. And volume has been relatively solid during this rally. The question now is if WYNN can trade clear of $140, which acted as resistance in July. From there, $150 is in the next key level before Wynn stock reaches an 18-month high.
- For market bulls, a bet on a breakout seems wise. The resolution of the trade war, assuming it holds, obviously adds to the bullish sentiment toward the stock. Valuation is reasonable. As long as the external environment holds, WYNN has a real chance to break out. The same is true for rival Las Vegas Sands (NYSE:LVS), an intriguing choice for income investors bullish on the region.
Veeva Systems (VEEV)
Veeva Systems (NYSE:VEEV) has been left out of the market’s rally for over five months now. The stock has challenged $170 on a pair of occasions, and quickly receded each time. But the second of Friday’s big stock charts shows a name back at support. At these levels, VEEV stock looks interesting — even if it admittedly still looks expensive:
- $140 has held as support on multiple occasions over the past few months, which suggests potential for a bounce. There are some technical concerns, however. There’s a modest descending triangle pattern underway. And VEEV stock saw a so-called “death cross” earlier this month, with the 50-day moving average falling beneath the 200-day.
- Still, there’s an intriguing case here. Veeva has established a dominant market position in life sciences software. Growth has been torrid for years now. And while VEEV stock is expensive at 56x forward earnings, it’s not terribly so in the context of high-growth software names. On an earnings basis, VEEV trades roughly in line with Salesforce (NYSE:CRM). Still-unprofitable SaaS (software-as-a-service) names like Okta (NASDAQ:OKTA) and Datadog (NASDAQ:DDOG) trade at a premium relative to revenue.
- More broadly, valuation hasn’t been much of an issue in the SaaS (software-as-a-service) space. It’s not entirely clear why it has been for VEEV stock in the second half of 2019. It’s not as if there has been a downside catalyst: Veeva delivered another beat-and-raise quarter late last month. Historically, that had been enough for upside. It may well be again in 2020.
Zynga (ZNGA)
Zynga (NASDAQ:ZNGA) stock touched a seven-year high this summer. But, since then, the third of our big stock charts shows clear resistance. The question is whether ZNGA finally can break through:
- There’s some reason to think that it can. An ascending triangle pattern usually leans bullish. The stock has cleared near-term moving averages and continues to grind higher. Resistance has been stout, but ZNGA stock looks like it’s mounting a legitimate challenge.
- As with VEEV, there’s a relative valuation case for the stock as well. Zynga stock isn’t necessarily cheap at 24x forward earnings, particularly given that analysts see flat bottom-line performance in 2020. But a large cash hoard helps the cause, and ZNGA stock certainly is cheap by tech standards.
- Put another way, there simply aren’t a lot of stocks that offer both value and the potential for growth. Zynga has both, given its $1.4 billion in cash targeted for acquisitions. The risk here is that the company’s successful turnaround largely has run its course. Investors in this market may be willing to bet otherwise.
As of this writing, Vince Martin has no positions in any securities mentioned.