The last three months have been plagued by an excessive amount of volatility in the markets. The S&P 500 is trading at a loss of only 2.20%, but has even so traded with gains over the last month after the month of May saw substantial losses. However, it is not just the last three months that have been volatile, the markets have been unpredictable, and headline driven, for the past year (actually the last 12 years).
As a result, there is a great deal of opportunity in this market, but investors must be careful about when they purchase. Below I am looking at five controversial stocks that have been volatile, and look poised to move in the coming weeks.
After beginning 2012 with relatively no momentum, Sprint Nextel (S) has been one of the market's best performing stocks, with a 30% gain over the last month. The performance of Sprint has been impressive, you must keep in mind that on Thursday it lost 5% of its value, yet has still returned 30% over the last four weeks.
Sprint is important to watch over the next week because it is showing no resistance and despite its fall the stock is still following its bullish trend. And this is a trend that so far I've called correctly. If you look at its performance above, you can see several dips of profit taking, but then it always recovers to trade higher. On May 18, Sprint began its bullish trend, following one month of flat trading, and since has followed a pattern where it trades to new highs (over last month) and then dips with profit taking, but the lows are always higher.
The chart above shows the lows throughout Sprint's rally, which are then followed by a trend higher. On Thursday, the stock fell 5%, but I think it's worth watching, because if the trend continues, it should trade significantly higher over the next week, perhaps to $3.60. Because there is nothing in this stock's way until it crosses the psychological ceiling of $4.00.
If you look at the three-month chart of General Motors (GM) you will see a very bearish trend. The stock has lost 17% of its value, while the S&P 500 lost only 2% during the same period. The stock has been unable to gain momentum, and as economic growth slows, and Europe remains in turmoil, investors have been slow to buy and hold those in the auto industry.
On July 3, the trend of GM may have reversed when the company announced June auto sales of 248,750, a 17% increase over last year. On Thursday, GM was down 0.63%, however it held gains for most of the day until the final 90 minutes of trading, it then dipped into negative territory. I think that with strong sales GM is worth watching, and that it could very well trade significantly higher over the next week. This is a very oversold stock and it won't take much to send its stock higher and create a bullish trend, I think $24 is very possible.
After reaching 52-week highs on April 2, Sirius XM (SIRI) then fell to $1.80 by the end of June. Over the last few days, it has rallied with authority, by nearly 13% since Monday. The company hasn't announced any news that I consider worthy of this rally, however this is a stock that has the ability to change directions in a matter of minutes, with a beta of 2.10. The performance of this stock almost makes you think that some large investors are accumulating shares in the open market. Either way, it usually finds difficulty in exceeding $2.00 (once it falls below) and SIRI blew past the psychological resistance and looks to be trading higher. I think it's worth watching, as $2.25 is very possible in the coming days as its next point of strong resistance.
Investors have tried to find the bottom of Research in Motion (RIMM) for the last year. Everytime you think it has reached a bottom, it trades a little lower. Much like SIRI, there were no major key developments, but some are speculating that the company will cut carrier fees to increase sales. If this speculation led to its 5% gain on Thursday then it shows that investors are ready to buy the stock at these prices.
However, I am still fearful, and don't see any real competitive advantage to RIMM regardless of whether it cuts carrier fees. At this point, RIMM needs new products and a new brand until I feel comfortable in its future. Therefore, I think investors should watch this stock over the next week, but not for gains, rather loss. RIMM has lost nearly 75% of its value over the last year, and has shown me no reason to believe that it's moving in the right direction.
Arena Pharmaceuticals (ARNA) may be the most controversial stock on this list, however I don't understand why - it is the only company with an FDA-approved weight loss medication at this moment. By now everyone knows the story of ARNA and its 270% three-month gain. The stock jumped by over 20% following its FDA approval, but then fell more than 15% in the three days that followed. However, on Thursday the stock climbed 13%, which shows the number of investors that are sitting on the sidelines waiting to capitalize on this stock.
After its initial jump (following the FDA approval), investors were selling in fear of significant profit taking, but now that it posted a day of gains, I wouldn't be surprised to see a massive rally, followed by 52-week highs, in the next week. This stock can return massive gains in just a days time. My suggestion for those wanting to own ARNA, but are fearful of its volatility is to just buy, hold, and forget. The upside in the weight loss market is enormous, and could be immediate, as people will anticipate the day when this company's drug hits the market. I personally believe gains could occur over the next week, but at this time it is a hard stock to predict.
Additional disclosure: The material in this article is for informational purposes only and should not be used for making any investment decisions.