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3 Stocks to Buy on a Market Pullback

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Trading equities this summer could have put even a wide-eyed novice to sleep. For two months the market went absolutely nowhere and volatility was stuck close to all-time lows. But now, summer vacation is over and the volatility index has woken up after markets were spooked about a possible September Fed rate hike.

Since the Brexit spike, volatility has been stuck around 12, but the last two days have seen an aggressive spike, pushing the VIX up to 20 early this morning. Traders are starting to get nervous that the Fed might hike rates twice to finish out the year. Recent Fed speak is the cause for the move, as comments on Friday led to a 2% plus selloff.

This might seem silly to most investors who think long term. But in reality, the market was due for a pullback and the complacency that we saw over the summer is now making greedy longs a little nervous.

So let’s say the market stays weak into the Fed and continues lower. Where and what do you buy? Looking at the S&P 500 there are a couple levels that are interesting. The 200-day moving average is sitting at 2058, a spot that everyone will be watching. The 200-day was cracked on the Brexit panic, but was quickly an area of support after the bounce.

However, I believe this area could be front run with a couple Fibonacci levels. The halfway back (50%) level drawn from Brexit lows to recent highs is at 2085 and could find support. If not there I will be looking at 2062, the 61.8% level for support. That level would font run the 200-day be a couple handles and force the 200-day buyers to chase when they realized they missed the entry.

The levels are important to know, but it’s more important to know what to trade when these levels are hit. Below I list four top ranked stocks that should be scooped up when the sellers are panicking. These stocks have a Zacks Rank #1 (Strong Buy) and a recent track record of earnings beats.

Broadcom (AVGO - Free Report) is a Zacks Rank #1 (Strong Buy) that is a designer, developer and supplier of analog and digital semiconductor connectivity solutions. The company was founded in 2005, employs over 8,000 people and is headquartered in Singapore.

Broadcom is valued at $64 billion and has a forward PE of 17. The stock sports a Zacks Style Score of A in Momentum and pays out a dividend of 1.24%.

Early this month the company beat on the top line and had an 11 cent EPS beat, or almost 8%. Despite multiple price upgrades from a variety of analysts the stock sold off. If the stock continues to fall to the 200-day just under $150, the stock must be bought. However, I’m eyeing a trendline and Fib level at $157 for a starter position.


Ambarella (AMBA - Free Report) is a Zacks Rank #1 (Strong Buy) that develops video compression and image processing semiconductors. The company was founded in 2004, has only 640 employees and is based in Santa Clara, California.

Ambarella has a market cap of $2 billion and a forward PE of 41. The stock sports Zacks Style Scores of A in Momentum, but a D in Value. The high PE is the reason for the low value score and the company will need to grow into the PE to support the stock. Recent earnings have investors hopeful that this growth can be achieved.

Last quarter, Ambarella surprised on EPS by 56%, while beating on revenue by $1.2 million. The stock sold off much like AVGO and will create an opportunity if it continues lower.

The $61 area is the 50-day moving average, but if markets head lower it will likely break and head down quickly. While to 200-day is just under $50, I will look to start buying around the $54 area, which is a halfway back Fibonacci level.

Netease (NTES - Free Report) is a Zacks Rank #1 (Strong Buy) that is an Internet technology company engaged in the development of applications, services and other technologies for the Internet in China. The company was founded in 1997, employs almost 13,000 people and is headquartered in Beijing, China.

Netease is valued at $28 Billion and has a forward PE of 18. The stock sports a Zacks Style Score of B in both Growth and Momentum and has an expected EPS growth rate of 26%.

Last month the company beat on the top line, had a 33% EPS beat and raised its dividend 6.8%. Online game revenue growth continues to amaze with revenues coming in at 6.4 billion Yuan (CNY), 69% higher than the CNY3.78 Billion seen last year. Advertising revenue year over year was up 24%, from CNY428 Million to CNY531 Million. The email, ecommerce and other segments also saw impressive growth, seeing revenue jump from CNY483 Million to CNY1.98 Billion.

The numbers continue to impress and a market pullback could knock the volatile stock back down under the $200 level. A pullback to the $170 level would allow a good entry above the 200-day at $168.


In Summary

When the markets start to panic your number one job is to stay calm and focus. There will be opportunity when there is blood and you need to be ready. Take time to make a watch list and target companies that are performing both fundamentally and technically. When the market bounces you will be rewarded.

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