- 5 Stocks Ready for Breakouts
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- 3 Stocks Under $10 Moving Higher
- 4 Stocks Under $10 Triggering Breakouts
- 3 Stocks Under $10 Making Big Moves
5 Big Stocks Ready to Slingshot Higher - views
BALTIMORE (Stockpickr) -- Mr. Market is taking a breather this morning after closing higher in each of the last four trading sessions. Most investors aren’t enthusiastic about stocks right now -- but they should be.
That’s because the S&P 500 has climbed 11.5% since the first trading day of January, a massive gain for any year on a historical basis. And the summer has been even stronger: Since the start of June, the S&P has climbed 9.7% in one of the most orderly rallies in recent memory.
But there’s a lot of noise on Wall Street right now. Between drama that continues to unfold across the pond and earnings season’s data dump of financials, there are some significant factors ready to distract investors from what’s going on in the broad market right now.
At this point, the rally isn’t showing any signs of slowing. Based on the script that the S&P’s ascent has followed this summer, I think it’s likely we’ll see a few sessions of correction coming up, but the critical factor to watch is the higher highs and higher lows being set by the big index. As we come up near important resistance at 1420, investors had better be taking note.
That’s why we’re taking a technical look at five huge names that could slingshot higher in August.
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, we take an in-depth look at big names that are telling important technical stories. Here's this week's look at the technicals of five high-volume stocks ready to move higher.
Even though the broad market’s been rallying in 2012, automaker Ford (F) isn’t exactly having a good year. All right, it’s having a horrible year: Shares of the $35 billion firm have tumbled more than 13% so far, missing the market’s average gain by more than 24%. That’s painful underperformance to be sure, but it looks like it’s finally coming to an end.
Ford had been stuck in a downtrend for most of 2012, bouncing lower off of a downtrending resistance level that started back in March. But an inverse head and shoulders pattern indicates that Ford may by bottoming in August. The inverse head and shoulders is a setup that indicates exhaustion among sellers -- and looking at this stock’s chart, sellers have reason to be tired.
The key level to watch in Ford right now is its neckline, which comes in at $9.50. A breakout above that price is our technical buy signal for shares.
It’s important to recognize that this isn’t the first time that Ford showed signs of bottoming over the course of this downtrend; back in June, shares looked ready to turn up too. But the bottoming pattern never actually “triggered” by moving up through resistance.
Since resistance is a level where there’s a glut of supply of shares, a breakout above our $9.50 neckline (a resistance level itself) is a requisite move for a bottom in Ford to make sense. It means that buyers have absorbed the excess supply above that price, and Ford can catch a bid at higher levels. Don’t buy this stock until it does.
Ford shows up on recent lists of 5 Stocks Under $10 That Probably Won't Double in 2012 and 5 Oversold Stocks Ready for a Bounce Higher.
General Motors (GM) looks almost identical right now. Like Ford, GM has gotten shellacked in 2012, falling around 25% from its peak price in the first quarter. The good news is that GM is also bottoming thanks to an inverse head and shoulders pattern right now.
The neckline level to watch here is $20.50. Don’t buy shares until GM moves above that price.
Lest you think that the head and shoulders is too well-known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in “profits [that] would have been both statistically and economically significant.” That’s good reason to keep an eye on GM right now.
Momentum is another reason. Our preferred momentum gauge, 14-day RSI had been in a sustained downtrend since February, but that downtrend broke and turned higher in late June. Since momentum is a leading indicator of price action, that’s a good sign for a bottom in GM this summer.
If you decide to trade either auto stock, I’d recommend keeping a tight protective stop.
Another stock that’s been under pressure in 2012 is Newmont Mining (NEM). Newmont’s down around 22% this year, dragged lower by similar price action in gold, the yellow metal that Newmont pulls out of the ground. There are more than a few macro factors that should support gold prices for investors with medium- to long-term time horizons, but those are beyond our scope right now. Instead, the focal point for Newmont should be the bottoming setup in shares.
Newmont is currently forming a double bottom pattern, a setup that’s formed by two swing lows that bottom at approximately the same level ($44 for Newmont). The buy signal comes when NEM can break out above the intermediate peak that separates those two lows -- that happens at $52.
With Newmont still a while away from $52, it’s critical not to think of this trade like a value investor. You’re not trying to buy when this stock gets “more expensive.” Instead, the buy above $52 comes when shares push above a price that’s previously housed a glut of supply of shares. By waiting until Newmont can catch a bid above that level, you’re taking part in a high probability trade.
Remember, good traders are more than happy to buy a stock when it gets more expensive, as long as it continues to get more expensive until they sell it!
Timber REIT Weyerhaeuser (WY) is looking strong right now. The firm saw its last major swing low when the market corrected in the second quarter and has been participating in the summer rally more actively than most. For investors looking for a buying opportunity, the ascending triangle setting up in shares looks ready to provide an entry point.
An ascending triangle is a price pattern that’s formed by a horizontal resistance level and an uptrending support level. Essentially, as shares bounce in between those two lines, Weyerhaeuser is getting squeezed closer and closer to a breakout above resistance. That resistance level is just under $24 in WY’s case.
Trading volume has been declining over the course of the pattern, something that’s actually a positive for the setup. Ideally, we want to see volume wane as the pattern progresses only to spike on the breakout. Volume means “trader participation”, so a volume spike on the breakout above $24 means that buyers are participating in the move.
If you decide to buy Weyerhaeuser there, keep a protective stop in place…
Last up is Agilent Technologies (A), an electronic measurement company that looks ready to slingshot higher this summer by virtue of the fact that it’s managed to kick off its cement shoes. Agilent slid double-digits in the last six months, stuck in a well-defined trend channel, but the downtrend break last week means that sentiment has shifted for this stock.
While Agilent is likely to correct lower in the near-term after surging around 7% in the last several trading sessions, the stock has posted a pretty definitive change in trend from down to up at this stage. Agilent looks like a good opportunity to buy the bounce, especially if shares slip down to test newfound support at their former trendline resistance level.
As long as Agilent stays out of that trend channel, buyers should be looking for entry points in this $14 billion firm.
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.
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.