Stock Quotes in this Article: AAPL, AMT, HNP, PPG, FB

BALTIMORE (Stockpickr) -- Europe’s latest meltdown couldn’t have come at a better time for Mr. Market.

That may seem like a strange thing to say. After all, the European austerity protests have been a big part of the five straight days of decline that the S&P 500 has been put through. But in the context of the rally that’s been running hard since June, this correction couldn’t have been timelier.

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We’ve got to keep recent market action in context after all: the S&P is up more than 14% this year, most of that since the beginning of June. And even more significantly, the rally has been orderly. By that, I mean that the S&P has been bouncing higher in a well-defined trend channel that gives traders a much better handle on the market’s likeliest moves. With Europe starting to unravel at the exact same time that Mr. Market was starting to correct back down to the bottom of the channel, the market’s in a good position to rebound into October.

After all, negative headlines could take the wind out of a rally attempt. Instead, the S&P is right at trendline support as I write, ready for a bounce higher.

That’s why we’re turning our focus to trading opportunities in a handful of charts this week. If you're new to technical analysis, here's the executive summary.

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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 ready to move higher.
 

 

Apple

First up is Apple ( AAPL), which has been getting a lot of attention for the past couple of weeks, primarily because of the launch of the iPhone 5. While shares made headlines when they broke through the $700 mark, they didn’t spend much time above that century mark. Now shares are looking a whole lot less positive, but I don’t think that a big drop is a foregone conclusion.

Here’s how you should trade AAPL this week.

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In short, Apple is looking like it’s forming a well-known topping pattern: the head and shoulders. But there’s a big difference between forming a head and shoulders top and actually triggering a sell signal. As long as AAPL can hold support at $660 the stock isn’t in danger of getting hammered by selling pressure. The fundamentals are still strong in this stock, even approaching $700. For folks looking to buy, a move above $680 is a good enough signal that this stock can still catch a bid higher up.

I realize that strategy of selling a “bargain” and buying a more expensive stock may sound alien to a diehard value investor. But as a technical trader, it doesn’t matter if a stock becomes more expensive as long as it keeps getting more expensive until you decide to sell.

Momentum adds some extra confidence towards an upside move -- RSI remains in a long-term uptrend right now. Until that changes, momentum favors more upside in Apple.

Apple also shows up on recent list of 3 Tech Stock Hedge Funds Are Buying and 10 Companies That Prove Stock Picking Is Still Alive.

Facebook

Things are a little bit more one-sided in shares of Facebook ( FB). I’ll be the first to admit that I haven’t been a fan of this stock. But look at this chart, and you wouldn’t be either.

Whenever you’re thinking about trading a recent IPO, there are a few things to consider. One of them is waiting for the stock to establish a trading history before buying or selling. Now that Facebook’s trading history has become more established, a pretty clear pattern is emerging in this stock: a downtrending channel.

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Facebook has hit its head on a trendline resistance level like clockwork since the stock’s first trading day. Lately, there’s been a lot of speculation that FB may have found a bottom around $17.50, but the setup in shares makes another test of that level completely possible.

I wouldn’t be looking to buy the dips on this name -- I’d be looking to sell (or short) the peaks. If you decide to do the same, just be sure to keep a tight protective stop.

PPG Industries

The opposite is happening in shares of $17.5 billion coating manufacturer PPG Industries ( PPG). Shares of the large-cap firm have rallied more than 37% so far in 2012, easily outperforming the rest of the market over the same time period. And an uptrending channel indicates that the rally isn’t over yet -- only correcting this week.

Like the broad market, PPG is correcting, giving back some gains as traders take a breather to absorb some of the gains that this stock has enjoyed. As long as shares stay above their trendline support level, the uptrend is still intact.

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In fact, the ideal time to buy is a bounce off of support -- it’s the price where shares have the furthest to move up to resistance, and it’s the price with the least downside risk. A move below support means that the trend channel is broken and the trade is off; that’s a logical place to put a protective stop under.

Momentum adds some extra evidence to this trade too. The RSI line has been in an uptrend since the middle of May, which means that despite the correction, shares of PPG are still climbing at an increasing rate. Since momentum is a leading indicator of price, that’s a very good sign.

American Tower

It’s also been a good year for American Tower ( AMT). Shares of the $28 billion communications infrastructure firm have rallied more than 18% since the first trading day in January. And, like with PPG, the technical pattern forming in shares right now points to even more upside.

That’s because AMT is forming an ascending triangle pattern. Put simply, the ascending triangle is a pattern that’s formed by a horizontal resistance level to the upside and uptrending support below shares. As the stock bounces in between those two technical price levels, it’s getting squeezed closer and closer to a breakout above that $73 resistance level. That’s our buy signal.

To be sure, the pattern in AMT isn’t pretty. It’s not exactly a textbook example of an ascending triangle. But what’s more important is that the pattern is tradable.

$73 is the price level that’s acting as resistance in this setup. Once it gets broken, I’d recommend being a buyer. Until then, it makes more sense to sit on the sidelines.

Huaneng Power International

Last up is Chinese power generation firm Huaneng Power International ( HNP), another stock that’s forming an ascending triangle pattern.

With any technical chart, I think it’s most valuable to think about patterns in terms of what they represent rather than thinking in terms of shapes that don’t mean much (triangles, rectangles, wedges). For HNP, the resistance level at $29.75 has acted as a sort of ceiling for shares because it’s a price above which there’s a glut of selling pressure. In other words, it’s a price where sellers are more eager to sell and take gains than buyers are to buy.

At the same time, the higher lows of late mean that buyers do have some conviction right now. If they can take out those sellers at $29.75, it makes sense to be a buyer.

Declining volume over the course of the pattern is a good thing too. Ideally, we want to see volume decline over the course of a pattern as those asks above $29.75 get absorbed by buyers, then a volume spike when shares break through that resistance level. The spike indicates participation in the trade. As with AMT, it’s a good idea to not be early in an ascending triangle trade; wait for the breakout, then buy.

To see this week’s trades 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.