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5 Big-Name Stocks to Trade for Gains - 22154 views
BALTIMORE (Stockpickr) -- While the first two weeks of May have proven difficult for investors and traders alike, it’s one thing to say that gains are nonexistent right now -- and another to say that they’re merely hard-fought. Indeed, while this is certainly not a market in which traders are “easily” tacking winning trades to their logs, the regular rules still apply.
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This week, we’ll seek out more of the same by looking at the technicals on some of Wall Street’s highest-volume stocks. In case you’re not familiar with technical analysis, technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
Every week, we take an in-depth look at large-cap stocks that are telling important technical stories. Here’s this week’s look at the technicals of five high-volume stocks .
It’s only fitting to start off our review of big-name technicals by looking at the stock that’s historically been the highest-volume stock on the entire NYSE by a significant margin -- I’m talking about Citigroup (C).
I say "historically" because Citigroup’s 1-for-10 reverse split this week took the stock’s price from the mid-single digits to the mid-doubles. That sort of shift always has a material effect on trading volume numbers, something that analysts will need to keep an eye on as they crunch volume-driven metrics in the coming days and weeks.
For all intents and purposes, stock splits don’t have a fundamental impact on a company; that is to say that Citi hasn’t changed by modifying the number of “pieces of the pie.” That said, splits can have a technical and psychological impact on a stock given that they impact things like liquidity, investors’ views of “cheap” or “expensive,” and access to the stock by institutions that operate under strict mandates on share price and trading volume.
Right now, Citigroup is consolidating, a state that the big bank has been in since the beginning of March. That sort of consolidation occurs when a stock’s buyers and sellers are trying to compete for domination of its share price – with well-defined support and resistance, traders should be on the lookout for breaches of either level. That’s a trading opportunity away from the consolidation area.
At the same time, investors should be looking for bounces off of support to pick up additional shares Citi.
In that sort of a situation, a consolidation is more a reprieve to avoid becoming overbought than it is a battle between buyers and sellers. Buyers have been in clear control of AT&T’s shares since the company announced its intentions to acquire T-Mobile at the end of March.
Traders should be watching out for a break above AT&T’s current $32 resistance level. When that happens, a reasonable price target should be just under $33.
Ford’s (F) long been a standout as the best of the Big Three Detroit automakers. Not only was this firm the only one to not require bailout funds and to avoid going through bankruptcy in the heat of the financial crisis, Ford was also the first of the Big Three to achieve the quality and efficiency changes it needed to stay a relevant automaker.
As a result of that, Ford’s been a popular trading vehicle on Wall Street. So where’s this vehicle going now?
Shares of Ford, one of TheStreet Ratings' top-rated automobile stocks, took an arguably outsized hit back in early 2011 despite announcing record numbers for the quarter. That hit derailed the uptrend that shares had been enjoying and sent shares considerably below the 52-week highs that they’d been making just weeks before. Since then, traders have been watching intently as shares put in an inverse head-and-shoulders bottom that’s still yet to trigger.
For the upside pattern to trigger, we’ll need to see a break above the stock’s neckline. While the fizzle from the right shoulder seems like a bad omen for the inverse head-and-shoulders formation, it’s not. Shares still made higher lows and bottomed above the 50- and 200-day moving averages, two prices that act as support levels for shares. It’s also far from uncommon to see multiple (called complex) shoulder formations -- the key is to wait for that neckline break before taking the trade.
Ford was recently highlighted in "Oil's Impact on 5 Transport Stocks."
The opposite of that pattern, a regular head-and-shoulders, is forming in shares of Microsoft (MSFT) right now. To say that the pattern is forming is a bit of an understatement -- Microsoft’s head-and-shoulders top has been in formation since way back in November when the left shoulder came together. But despite the time it’s taken for the pattern to complete, the implications are still there for shares.
As with the Ford pattern, the trigger for Microsoft comes on a break of the neckline. Unlike with Ford, Microsoft’s pattern has bearish implications. That’s because a head-and-shoulders top depicts exhaustion among buyers, who no longer have the conviction (or the capital) to continue buying. Without that requisite buying shares fall (even moreso when shorting comes into play).
Watch for jerkiness in Microsoft’s right shoulder -- we’ll want to see a clean, confirmed break below the neckline before this trade becomes shortable.
Microsoft, one of the top-yielding computer software and services stocks, shows up on a recent list of 3 Big Tech Winners in China.
MGM Resorts International
A good example of just such a clean, confirmed break comes from MGM Resorts International (MGM), a stock that made our list of Must-See Charts last week. At the time, solid earnings data had just propelled MGM above its resistance level at $14, and I recommended waiting for confirmation that day that MGM was able to hold above $14 and then considering a protective stop just below that resistance level.
Sure enough, shares opened right above that resistance level the next day, giving traders an opportunity to make more than 7% on the trade in the days since (it traded as high as $15.15 yesterday). MGM is a good example of why conditional triggers are so essential for traders -- by waiting for evidence that MGM could hold $14, we made sure that excess supply of shares at that price had been absorbed by the market, and acted on a high-probability trade.
To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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.