7 Stocks to Watch as Wall Street Attempts to Rebound From Friday’s Sell-Off

• Tech stocks were hit hard last week whenever earnings showed any weakness. Valuations, sentiment and seasonal patterns, though, point to a firmer finish to the year.
• The S&P 500 now trades below its 5-year and 10-year average forward P/E, and the premium tech usually commands over the index has almost disappeared.
• Which stocks have bullish technical setups, and which are better left alone until they find a floor?

The market has made one thing clear this earnings season: it has run out of patience. Alphabet is the most visible example, but it isn’t the only one. Several tech names have fallen sharply after reporting, as investors punish anything short of clean results more severely than they have in a long time.

Still, the selling hasn’t set the tone for the week ahead. At the time of writing, tech stock futures were trading in the green, which suggests some buyers are already looking past last week’s reactions. In a market this jumpy, statistics and charts help cut through the noise.

Midterms and Seasonality Point to Gains

The US holds its midterm elections on Tuesday, and history is encouraging. Since 1950, the S&P 500 has posted positive returns in every instance at 6, 9 and 12 months after a midterm election. The average gain has been 14% after six months, 16% after nine months and 15.1% after a year.

Seasonality adds to the case. Since 1950, November has delivered an average S&P 500 gain of 1.9%, and December 1.4%. Volatility also tends to fall over the last two months of the year, based on the average VIX pattern of the past 20 years, and declining volatility usually supports stock market rebounds.

Friday’s session offers another data point. The Nasdaq opened with a gap down of more than 2.5% while still trading above its 200-day moving average. This has happened only 13 times, so the sample is small, but the Nasdaq was higher six months later in 92% of cases, with an average return of 19%. After a year, the success rate was also 92%, with an average gain of 30.5%.

Valuations Are Far From Bubble Territory

Despite the recent pullback in tech, valuations do not look stretched. The S&P 500’s 12-month forward P/E divided by its operating margin is at its lowest level in 14 years, which suggests the market is not overpaying for the profits companies are generating.

The tech sector is also trading close to the broader market. The sector’s P/E normally sits well above the S&P 500’s, but the two are now almost level. That is very different from 2000, when the tech sector’s P/E was nearly double the index’s just before the bubble burst.

After the latest declines, the S&P 500 also trades below both its 5-year and 10-year average forward P/E.

Sentiment, meanwhile, remains cautious. In the latest AAII survey, bulls rose slightly above their historical average, while bears dropped from 45.8% to 41.4%. That is still well above the long-term average of 31.5%. If fear intensifies over the coming week and headlines turn alarmist, that is typically when the charts deserve the closest attention.

What the Index Charts Are Saying

The Nasdaq 100 fell 3.46% on Friday, but on the weekly chart it has not yet lost its key support. Its 200-week moving average is still rising, and the sequence of higher highs and higher lows remains intact. The daily chart is weaker: Friday’s bearish gap pushed the index below its 200-day moving average area, so filling that gap is the next thing to watch.

The S&P 500 also left a bearish gap on Friday, though a narrower one. The first supports to monitor are the 200-day moving average and the 7,507 level. A break below 7,507 would trigger a bearish divergence and raise the odds of a deeper Fibonacci correction of the previous rally. On the weekly chart, the trend of higher highs and higher lows is still in place.

The Dow Jones is sitting right on its 200-day moving average, with further support at the October lows around 50,546. Notably, the Dow remains above its October lows, while the S&P 500 and especially the Nasdaq have fallen below theirs. In other words, tech is doing most of the damage.

As for the VIX, Friday’s spike stopped short of closing above 20.54, leaving resistance at 23.67 and 24.98. On the downside, the 16 area and the 13.85 floor are the levels to watch.

Using InvestingPro to Find Opportunities

Many of the stock ideas below come from InvestingPro’s ProPicks AI portfolios, which are updated every month. The AI analyzes more than 100 financial parameters and 25 years of data to select companies.

The Tech Titans strategy is up 18.6% this year despite the tech sell-off, ahead of both the S&P 500 and the Nasdaq 100, and has historically averaged an annualized return of 28.1%.

Source: InvestingPro

Mid-Cap Movers, a strategy focused on US mid-caps, has gained nearly 45% this year, with a historical annualized return of almost 20%.

Source: InvestingPro

InvestingPro’s AI assistant is also useful for reviewing results as they come out, as with Alphabet’s earnings this week. It can also screen with fundamental and technical filters, map out support and resistance levels, and summarize companies an investor is not yet familiar with.

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7 Stocks With Bullish Setups

Here are the 7 stocks whose charts currently point to further upside, along with the levels that would weaken the outlook:

1. Mastercard (MA):

Mastercard (NYSE:MA) is trading near all-time highs with no meaningful resistance overhead. It has almost reached the first target around 645, with the weekly high at 644.24. A more ambitious rectangle target points toward 726.48. Supports sit at 605, 600 and 544.58.

2. Booz Allen Hamilton (BAH):

After meeting a second-impulse target, Booz Allen Hamilton (NYSE:BAH) stock now has an inverse head-and-shoulders target toward 101.60. Supports are at 81.19, the moving average and 66.50.

3. Eli Lilly (LLY):

For Eli Lilly (NYSE:LLY), both previous targets have been met, including the second bullish impulse toward 1,346.30. Friday’s candle marks resistance at 1,449, but there are no signs of weakness yet. The price is stretched from its supports, the first of which is around 1,292.

4. Donnelley Financial Solutions (DFIN)

One of the most interesting setups right now is Donnelley Financial Solutions (NYSE:DFIN). An impulsive weekly candle and a bullish MACD crossover suggest the rebound has further to go. A break above the all-time high at 71.01 would activate a second-impulse target toward 101.20. It is overbought, but shows no signs of weakness. Fibonacci supports sit at 58.90 and 54.10.

5. Pfizer (PFE)

Pfizer (NYSE:PFE) is in a rebound phase, with an inverse head-and-shoulders pattern targeting 35.40. The pattern is not a textbook one, but the break above 27.50 is a positive sign. Supports are at 29.21 and 27.10.

6. Tyler Technologies (TYL)

Tyler Technologies (NYSE:TYL) has already met an inverse head-and-shoulders target and still has a pending double-bottom target. The first resistance sits around 395 to 400, and the outlook would weaken below 312.

7. Bausch Health (BHC):

A stock taken from the InvestingPro ProPicks AI portfolios is Bausch Health(NYSE:BHC). It broke out of a triangle with a bullish gap, setting a target toward 11.85. A move above 11.46 would activate a larger double-bottom pattern with a target near 18.50. The gap should not be filled. This is a volatile stock with a poor long-term track record, so it suits only a small position, but the short-term upside could be significant.

Stocks to Approach With Caution

Amazon (NASDAQ:AMZN) opened sharply lower after earnings, but buyers stepped in once it touched support, so the session was less negative than the gap suggested. The short-term double-bottom target near $290 is now invalidated, a reminder that not every target is reached and that stop losses matter. The key level is 225.55: the higher-lows sequence needs to hold there. The 200-day moving average, now turning slightly lower, could act as resistance.

ASML (NASDAQ:ASML) rallied from €501 to around €1,736 in one of the year’s strongest moves. It is now consolidating, and the technical picture is unclear in the short term. Resistance sits at €1,671, with Fibonacci support near €1,268 and further support around €1,080. A break of the trendline and €1,332 would call for caution.

Stocks to Avoid for Now

Intel (NASDAQ:INTC) left a large bearish gap on Friday, a clear sign of weakness, and still has a pending bearish divergence target. The weekly MACD has also crossed lower. The rising 200-week average and the previous highs around 50 to 60 offer a first support zone, and a short-term bounce is possible. But gaps this large rarely close quickly, and Intel’s past bottoms took months of sideways rectangle patterns to form. Rather than trying to catch a falling knife, it makes more sense to wait for the stock to find a floor.

Conclusion

The market is clearly in a less forgiving mood, and tech is taking most of the hit. Under the surface, though, the numbers look more constructive than the headlines suggest. Valuations are reasonable, sentiment is still cautious, and both midterm-year history and year-end seasonality have historically favoured the bulls. Statistics are not certainties, so key support levels on the major indices and individual stocks remain the best guide to whether that positive backdrop holds.

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Disclaimer:This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. Any type of asset is evaluated from multiple perspectives and is highly risky, and therefore any investment decision and the associated risk remains with the investor.