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5 Big Stock Charts You Need to See - views
BALTIMORE (Stockpickr) -- Even though Mr. Market is continuing to take a breather this week, not all stocks are following suit. That’s especially true in the big names, where trading volume is the strongest; there certainly are still some attractive trades popping up in this market.
That’s why, today, we’re taking a technical look at the price setups forming in five of the biggest names on Wall Street.
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions.
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 research shows that skilled technical traders can bank gains as much as 90% of the time.
Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at the charts of five high-volume stocks to trade for gains.
It’s been a ho-hum year for cosmetics company Estee Lauder (EL); shares of the $24 billion firm have only moved around 4% higher since the first trading day of 2013. But EL could be in store for considerable upside thanks to the long-term pattern that’s been forming in shares.
Lauder is currently forming an ascending triangle pattern, a trading setup that’s formed by a horizontal resistance level to the upside and uptrending support put in below shares. Essentially, as EL bounces in between those two technically significant price levels, it’s getting squeezed closer and closer to a breakout above that resistance level at $64. When the breakout happens, we’ve got a buy signal on our hands.
Momentum adds some extra confirmation to the upside setup in EL. That’s because 14-day RSI has been able to maintain an uptrend over the course of the pattern, a sign that Lauder’s price increase is accelerating. Since momentum is a leading indicator of price, that’s a very auspicious sign for shareholders.
Wait for the breakout before putting your cash on the line in EL.
We’re seeing the opposite pattern in retail behemoth Wal-Mart (WMT) right now. WMT is currently forming a descending triangle, and as the name implies, it’s the bearish inverse of an ascending triangle. In this case, we’ve got a horizontal support level at $68 and downtrending resistance above shares.
The trading signal is exactly the opposite in this stock; Wal-Mart will have to push through its horizontal support level before it triggers a sell signal.
With any technical pattern, it’s critical to think in terms of buyers and sellers -- not shapes. After all, triangles, head and shoulders patterns and the like are a good way of describing what’s happening on a chart, but they’re not the reason why it’s tradable. Instead, that all comes down to the supply and demand caused by those buyers and sellers.
The horizontal support level at $68 is a place where a glut of buyers has been willing to step in and put a floor in the stock. A breakdown would mean that increasingly eager sellers have absorbed all of the excess demand of shares sitting at that level -- and without that floor in place, shares could fall much further than that.
That’s why it makes sense to sell WMT on a push through $68.
Microsoft (MSFT) is another name that’s been showing traders a big technical setup in the past couple of months; I talked about it last week, but the latest developments in this stock warrant a second look. Despite the fact that shares of the $234 billion software firm have fallen more than 10% in the last four months, it looks primed for a reversal.
That’s because after consolidating sideways for the last quarter, MSFT is finally breaking out above its nearest horizontal resistance level at $28. That breakout indicates that buyers have finally mustered enough wherewithal to take out any excess supply of shares above that $28 price. That’s a buy signal.
This week’s breakout also coincides with a move above the long-term downtrend resistance level that’s connected Microsoft’s swing highs since the summer. With a downtrend over and a reversal in play right now, it could be a worse time to buy MSFT. If you decide to jump in here, I’d recommend keeping a protective stop at the 50-day moving average.
Vitamin and health product retailer Vitamin Shoppe (VSI) is showing a similar setup right now. Like Microsoft, shares of VSI have spent the last few months consolidating sideways in a price channel that’s bounded by horizontal support below and horizontal resistance above shares.
After VSI’s climb in 2012, that rectangle trading range gave shareholders a chance to catch their breath and figure out their next move. And this month, it looks like they’ve figured it out; shares of VSI broke out above $62 resistance last week and have been holding their ground ever since. That signals a buy for traders who’ve been waiting on the sidelines; buyers are definitively in control of this stock right now.
Just like the buy signal with Microsoft, I’d recommend keeping a tight stop in VSI if you decide to be a buyer here.
The financial sector has been on fire for the last quarter, and London-based HSBC Holdings (HBC) has been no exception. The big bank has seen its share price rally around 20% in those trailing three months. And from here, it doesn’t take an expert technical analyst to figure out what’s going on in this stock.
HBC is currently forming an uptrending channel, a trading range that’s bounded by a trendline resistance and trendline support level. Those support and resistance levels give us a high probability range for this stock to trade within. And as you might expect, the ideal time to be a buyer is on a bounce off of support.
When you’re looking to buy a stock within a trend channel, buying after a bounce off of support makes sense for two big reasons: it’s the spot where shares have the furthest to move up before they hit resistance, and it’s the spot where the risk is the least (because shares have the least room to move lower before you know you’re wrong). Keep that in mind when putting in a stop loss in HBC.
To see this week’s trades in action, check out this week’s Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.