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  • Technical analysis is a valuable tool for finding stocks worth buying and selling.
  • This little-known software stock could rally over 20%.
  • However, a widely known lodging stock could be about to tumble.

Stocks made a big move from the mid-October lows, but poor performance so far in December is a good reminder that stocks don’t go up or down in a straight line. Instead, they can stairstep or zigzag higher or lower. Or they can simply churn sideways, leaving both bulls and bears frustrated.

Technical analysis is one tool investors can use for insight into when stocks are likely to rise or fall. Because price charts reflect the aggregate thinking of all market participants, technical analysis can help you identify stocks to buy or sell.

Fortunately, Real Money’s technical expert, Bruce Kamich, provides a steady stream of ideas daily.

Kamich’s been evaluating price action since the 1970s, so he’s seen his fair share of good and bad markets. This week, he offered his technical take on many companies, including one stock that could rally over 20% and another that could find itself in a tailspin.

Why you can buy Bentley Systems stock

Technology stocks haven’t been very kind to investors this year, given the SPDR Technology ETF  (XLK)  is down about 25%. Yet some stocks are starting to climb the proverbial wall of worry, including Bentley Systems  (BSY) , a maker of software used to design and build infrastructure.

Perhaps, the recent improvement in Bentley’s share price isn’t surprising. Industrials tied to infrastructure construction have been solid performers this year ahead of rising spending next year because of the Infrastructure Bill. That bill, which passed last year, earmarks $110 billion in Federal funds for states and communities to rebuild deteriorating roads and bridges.

In “Here's a Promising Looking Long Tech Play,” Kamich reviews the daily chart, on-balance volume, and moving average/convergence divergence (MACD) for insight.

As a refresher, on-balance volume is essentially a running total of up minus down day volume. MACD is a momentum indicator that subtracts the 26-day Exponential Moving Average (EMA) from the 12-day EMA. A bullish or bearish signal triggers when that result crosses over or below zero.

He writes:

“In this daily bar chart of BSY below, we can see what I believe is a bottom pattern playing out since February. Prices have crossed above and below the 50-day moving average line a number of times but are now trading above the bottoming 200-day moving average line and the rising 50-day line. The trading volume has been increasing since July.

The On-Balance-Volume (OBV) line shows a low in May and a second low in October. The Moving Average Convergence Divergence (MACD) oscillator is in a bullish alignment above the zero line.”

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Kamich likes that on-balance volume is improving off previous lows because it suggests buyers are back in charge and that the momentum indicator is bullish. It's also encouraging that the slope of the key 50-day moving average is turning higher. Since shares are currently above the 200-DMA, and Bentley’s stock has trended sideways for months, the 200-DMA is flattening, offering the potential to turn higher too.

How far does Kamich think Bentley’s shares could climb? Using point-and-figure charts, he calculates a target price of $46, leading him to conclude, “Traders could begin to probe the long side of BSY on a dip to the $38 area. Risk to $35. The $46 area is our price target.”

Why you should consider selling Airbnb stock

The pandemic put the kibosh on travel, causing many related stocks to tumble, especially lodging stocks with expensive valuations, including Airbnb  (ABNB) . While travel trends are normalizing thanks to global immunization efforts and consumers’ increasing acceptance of the post-COVID “new normal,” the industry faces a new foe in declining demand associated with a weakening economy.

With inflation running at levels last seen in the 1980s, consumers have endured negative real wages for the past 20 months, forcing them to rethink discretionary spending, including travel plans. Moreover, the possibility of a return to negative economic activity – recession – next year has increased as the year has progressed, prompting more companies to revisit layoffs. The potential negative impacts to travel demand because of a downturn puts another check mark in Airbnb's “tough times” column.

In “There Are Plenty of Reservations About Airbnb,” Kamich runs Airbnb through his technical gauntlet. But, unfortunately, he finds little to like about shares now. He writes:

“In this daily bar chart of ABNB below, we can see a number of downtrends. We can see the larger downtrend unfolding over the past year, and we can see a shorter downtrend from early September. Prices are testing the lows of early July. Prices did not stay in the early July zone for long, so the idea that $86.71 is important support is laughable.

The daily On-Balance-Volume (OBV) line is in a downward pattern and tells us that sellers of ABNB are more aggressive than buyers. The Moving Average Convergence Divergence (MACD) oscillator is bearish.”

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That’s a discouraging outlook for the bulls, but how low could shares fall if bearishness continues? The daily point-and-figure chart indicates $71, while the weekly P&F chart suggests a target near $34, according to Kamich.

As a result, Kamich advises, “avoid the long side of ABNB. Prices are likely to make lower lows in the weeks ahead.”

The Smart Play

Infrastructure Bill spending should kick in with verve next year, supporting demand for companies like Bentley Systems. The charts are favorable, but that’s not the only reason to consider trading it long.

Bentley has turned a profit yearly since 2017, including a $0.72 per share showing in the COVID-recession impacted 2020. Wall Street analysts expect that Bentley’s earnings will be essentially flat this year versus 2021 at $0.84, increasing 5% to $0.88 next year. The company’s price-to-earnings ratio is arguably not cheap at 44, but it’s not extended relative to the historical range. Over the past five years, its P/E low and high are 30 and 92, respectively.

Perhaps, short sellers have aimed at it because of that valuation. It would take about eight days to cover bearish bets at its average daily trading volume. So, if shares march higher, thinking short covering may provide additional upside support isn’t a stretch.

Another interesting sign is that institutional investors have increasingly warmed up to the stock. According to MarketSmith data, it showed up in 593 institutional portfolios in the third quarter, up from 499 portfolios one year ago.

If you want to buy Bentley’s shares, consider establishing a full position near current levels, using the uptrending 50-DMA as an area to place a stop loss in case you’re wrong. This is roughly in line with Kamich’s advice to “risk to 35.”

Airbnb has undeniably become part of our everyday vernacular, which is often a good thing. The company’s also finally turning a profit, with expected earnings per share of $2.58 this year and $2.79 next year. 

However, the forward earnings outlook is declining, and if the economy worsens, it wouldn’t be surprising if analysts further ratchet back their estimates. The company’s shares could bounce at June’s low, but as Kamich mentioned, that’s not very strong support given how short of a time it traded there.

If you’re interested in selling Airbnb, consider unwinding on a challenge of its downtrending 21-DMA and 50-DMA. If it continues higher, it will face additional resistance at the $125 to $130 area. 

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