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3 Technical Setups for the Week - 42206 views
BALTIMORE (Stockpickr) -- Last week's correction hit the brakes on Friday, a good sign for traders who'd been watching for key support levels in the S&P 500. Despite admittedly tepid trading for much of the day Monday, it would appear that the broad market has settled on its near-term price floor. We're sitting just about 1% below the S&P's high of 1,344.07, which is a significant target to watch for in stocks.
Right now, the market's acting particularly technically obedient, a phenomenon that should give traders an added edge as we enter March. At the same time, confirmation of support at 1,300 in the S&P bodes well for longer-term investors too; having a nearby support level significantly reduces downside risks for all market participants.
All the more reason to look at three new technical setups this week.
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Remember, technical analysis is 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.
Starwood Hotels & Resorts
For shareholders of Starwood Hotels & Resorts Worldwide (HOT), the last year has been a kind one to portfolios. In the trailing 12 months, shares of this hotel giant have risen more than 58%. But the appreciation in shares could have further to go thanks to a bullish "channel up" setup in the stock.
The idea that stock prices move in trends is one of the principal concepts of technical analysis -- and Starwood is a great example of a trend in action. More specifically, Starwood is exhibiting a trend channel, a pattern where the stock's price action is banded on either side by support and resistance levels. With Starwood sitting right above trendline support right now, traders could have a good opportunity to buy shares as they make their way up the trend channel once more.
To take this trade, I'd suggest waiting for the bounce higher off of trend line support. The bounce ensures that our pattern is making another run, and is significantly less likely to fail as a result. That bounce becomes buyable once shares move above the 50-day moving average. Keep a protective stop just below $60 to protect against a downside move.
Starwood was one of Goldman's 11 best consumer stocks for 2011.
For Paccar (PCAR), the tides could be turning. Unfortunately for shareholders, that turn is coming at the heels of the 42% rally that shares have taken in the last 52 weeks. Now, a bearish setup is threatening to send shares markedly lower amid selling.
The pattern forming in Paccar is a head-and-shoulders top, a setup that's among the most popular for nascent market technicicans -- and among the most predictable once they trigger. That said, this pattern sees a relatively high rate of failure before they trigger, something that traders would do well to consider. In Paccar, the head and shoulders setup is unique because of the rounded nature of the head.
Ultimately, traders will want to turn to a break below the neckline (above) for an opportunity to bet against shares. I'd strongly recommend against placing a trade until the breakdown actually takes place -- then, place a protective stop above the neckline at $50.
Paccar recently showed up on a list of four manufacturing stocks to watch.
SPDR Gold Trust
Commodities have been getting considerable attention of late, with silver making multi-year highs and oil prices soaring thanks to tension in the Middle East. But there's a setup that traders and investors alike should be watching in the most popular commodity of all: gold.
Shares of the SPDR Gold Trust (GLD) are making a fourth attempt at longstanding resistance at $139. A break above could be a strong buying opportunity.
With GLD, the biggest benefits are the ETF's actual bullion holdings (which makes the fund a near-perfect proxy for gold on a short-term to mid-term basis) and its liquidity. Because of the ease of access that investors have to ETFs such as GLD, this fund is liquid enough to be an excellent trading vehicle. We'll want to see a close, then subsequent open above $139 to consider any breakout in GLD confirmed.
When and if that happens, this precious metal could make a strong move higher.
GLD is a top holding of both George Soros' Soros Fund Management, which owns 4.7 million shares as of the most-recent reporting period, and John Paulson's Paulson & Co., at 14.9% of the total portfolio.
To see these plays in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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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.