Feeling shut out of this hot market? Maybe some FOMO – fear of missing out. you are not alone. After recording its best monthly gain of the year in November, the S&P 500 continued to hit record highs in the first week of December. However, all this buying is pushing the market into overbought territory, according to the S&P 500 Short-Term Oscillator, a technical indicator Jim Cramer has used to track trading momentum for decades. Our discipline requires us to consider booking profits in overbought markets, as we did on Tuesday on one of our big winners, Microsoft. However, we also choose where to buy. On Wednesday, we bought more of our latest position in Bristol-Myers Squibb stock amid the recent decline. As a long-term stock investor, the Club believes that fundamentals are of paramount importance when making investment decisions. However, it is also useful to have a look at the technical aspects. Methodology We approach technical analysis from the perspective of a new money investor looking to establish a position, or someone with an existing position at a loss, where another buy may help reduce their cost basis. For those of you with existing positions, this exercise can help you determine when it’s a good time to consider breaking out of a position if you feel you need more exposure. However, this is a violation of our discipline and should not be taken lightly. Our analysis can also inform members when these stocks are at so-called “battleground levels,” which may prompt you to adjust your exposure accordingly. We looked at the charts of two Buy-equal Level 1 stocks (Constellation Brands and Home Depot) to determine what level to buy at. Constellation Brands Buy Levels: $230, $210 The Mexican beer giant successfully tested $230 per share on November 26, which has been a key technical support level for the past two years. There is also a long-term uptrend in play at the $230 level, as shown by the pink line. A test of support in late November came amid increased trading volume. We think of volume as a stock lie detector because trends with higher volume are more trustworthy. As pointed out at the members’ morning meeting. From a fundamental perspective, the stock is well below its five-year historical valuation of 2025 profit expectations. However, from a technical perspective, the stock is currently below its 50-day and 200-day moving averages. This means there are resistance levels above at $242 and $250, which need to be overcome before the stock attempts to hit the previous highs. Fundamental concerns over President-elect Donald Trump’s move to impose 25% tariffs on Mexican imports on Monday night are certainly a consideration that cannot be ignored, however, this has arguably been driven home by a stock price well below its historical average (a forward P/E ratio of 15.8 times) of the stock price. On November 26, the day after Trump announced the news, Constellation’s stock price fell more than 3%, which is strange because we can’t understand why investors would be surprised by Trump’s tariff plan. That’s why Jim says buy the stock on the dip. Speaking at the Morgan Stanley Consumer and Retail Conference on Tuesday afternoon, Constellation Chief Financial Officer Garth Hankinson said there are a number of tools that could be used to counter any tariffs. He cited accelerating cost savings, ensuring adequate supply in the U.S. and balancing incremental price increases. These possibilities are being explored, but no decisions will be made until the tariff plan becomes policy. Hankinson’s comments come after the company announced the sale of its Svedka vodka brand. It’s a positive move to address Constellation’s troubled wine and spirits business. We would be more cautious if $230 failed as there isn’t much support between $230 and $210, the previous low we saw in January 2023 – the starting point of our uptrend line – especially if Emotions took over stocks, investors began to “sell first, ask questions later,” and Trump tweeted randomly about tariffs. Home Depot Buy Levels: $418, $406, $375, $370 We’ve seen several interesting technical levels, including $418 per share, which was the stock’s all-time high until the recent breakout. For many technicians, testing breakouts is a must. This occurs when a stock rises above a previous high (like now), but then falls back to the previous high and finds support (i.e. buyers). If this happens, it may be seen as confirmation that the breakout is real and can be bought. In other words, from a technical perspective, you don’t want to buy this breakout at this point, but rather on a bounce off the old highs, especially if volume increases. The first buying level is the $418 level. But keep in mind that this is just a little more than a 2% retracement from where the stock was trading on Wednesday. If you have no position at all, you may be interested, but if you have a position, then you will need to wait for a larger decline, which will ideally improve your overall cost base. From there, we reach $406, which is where we find the 50-day moving average. Remember, when a stock trades above the moving average, it is considered support, and when a stock trades below the moving average, it is considered resistance. Fundamentally, we could see lower mortgage rates this week as long-term bond yields eased on Wednesday. Mortgage rates fell last week, sending demand for home loans soaring. Continued lower mortgage prices should boost home construction and housing turnover. We think Home Depot is in a solid position selling the supplies and equipment you need to build a home, as well as the tools you need to renovate. If shares fall below the $406 level, we would be watching the $375 to $370 area – $375 is where we see the uptrend from October 2023 coming into play; $275 is where the 200-day moving average comes into play place. With the stock trading above its 200-day moving average, that level is seen as technical support. (Jim Cramer’s Charitable Trust is a long-term holding of STZ, HD, BMY, MSFT. See here for a full list of stocks.) As Jim Cramer’s CNBC Investing Club subscribers, you will receive trade alerts before Jim Cramer trades. Jim waits 45 minutes after sending a trade alert before buying or selling stocks in his charitable trust portfolio. If Jim talked about a stock on CNBC TV, he would wait 72 hours after issuing a trade alert before executing the trade. The investment club information above is subject to our Terms and Conditions and Privacy Policy and our Disclaimer. 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The exterior of the New York Stock Exchange on September 18, 2024 in New York City.
Stephanie Keith | Getty Images
Feeling shut out of this hot market? Maybe some FOMO – fear of missing out. you are not alone.
this S&P 500 Index Following November’s best monthly gain of the year, record highs continued in the first week of December.
