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3 Technical Setups to Watch - 53114 views
This week is threatening to give investors an abundance of economic data to process, a stark contrast from the largely quiet trading week to end September. The big question that remains is whether this week’s data will push the market’s direction skyward, or continue the bearish turn taken by stocks on Monday.
ISM data, crude inventories and jobless numbers are all on the menu for this week. But barring any startling discoveries, I don’t suspect that we’ll see a massive move from the broad market. Right now major indices are starting to consolidate sideways, a sign that stocks are building a base for their next big decisive push. As such, we’re unlikely to see stocks break out of their sideways bent this week.
But that doesn’t mean we won’t see big gains from specific stocks that are exhibiting interesting technical setups right now.
Technical analysisis a way for investors to quantify qualitative factors, such as investor psychology, based on a stock’s chart patterns and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Here’s a look at this week’s potential trades.
While shares of Corrections Corporation of America (CXW) have only gained 49 basis points year-to-date, this stock’s price chart has hardly been confined; while gains are minimal since January, shares have shown impressive volatility, rallying 32% in the last three months alone.
Based on the way shares of Corrections Corp. are trading, shares of this privatized prison operator could be setting up to make their next move higher.
Much like the broad market, Corrections Corp. is consolidating right now. The firm broke out in a big way back in August, pushing above resistance at the 200-day moving average, and making gains on high volume in the last couple of weeks. For the past few days, shares of the company have been trading sideways in a tight range, building a base, and ostensibly preparing for their next test of new highs for 2010.
Who Owns Corrections Corp.?: Bill Ackman
The key to watch for is a breakout above the $25 level -- a sustained breakout. That means that we’ll want to see two consecutive closes above that resistance level before this stock becomes worth buying. Place your protective stop at $24 to mitigate the downside risk on this play.
A decent dividend payout and double-digit margins haven’t kept shares of natural gas firm EQT (EQT) from facing significant challenges this year. Shares have already tumbled nearly 18% since January, and the technicals suggest that further downside is in store for this Pittsburgh-based producer.
EQT has been locked in a trading channel for most of the year, staying within a tight range of parallel, downward sloping support and resistance lines. Trading channels are a godsend for volatility-hungry traders. After all, stocks like these can be traded continually as they trade down a channel. And right now looks like an especially opportune time to take advantage of a short trade on this stock.
That’s because shares of EQT are sitting right at the top of the channel, the place from which prices have the furthest to fall before finding support. Don’t be fooled by the apparent break above the 50-day moving average of late -- shares of EQT made the same move back in early August, only to trade substantially lower back down to support before the month’s end.
Who Owns EQT?: Arnie Schneider
If you’re going to place a trade on this stock, put your stop right below $38. If previous cycles are any indicator, traders could potentially close out this trade at support by Halloween.
Independent oil and gas firm Whiting Petroleum (WLL) is exhibiting one of my favorite technical setups right now -- a sign that a bullish move is underway in shares of the stock. Watch this trade closely as it pushes through to new 52-week highs.
Whiting formed a bullish ascending triangle pattern between April and September, finally breaking out at the end of last month. That breakout means that this stock isn’t just a setup any longer -- it’s a full-blown trading opportunity. Shares have retested support at $94 and change and are currently sitting right at $97. Don’t underestimate the psychological impact of hitting $100 though. While shares should have significant upside ahead of them, that level could act as a stumbling block in the next week.
If you want to go long shares of this firm, I’d recommend placing a protective stop at $94.
To see these plays in action, check out the Technical Setups for the Week portfolio on Stockpickr.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.