Stock Quotes in this Article: AAPL, ALL, CBRL, SYK, TRV

BALTIMORE (Stockpickr) -- Another week, another central bank event for investors to pin their hopes on.

Last week, it was Ben Bernanke’s Jackson Hole, Wyoming speech that investors were transfixed on. This week, it’s European Central Bank President Mario Draghi’s press conference that’s grabbing the headlines. Once again, Wall Street is expecting the best from financial leaders, with a record interest rate cut expected by many economists.

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But speculation aside, price action shows buyers are coming back out of the woodwork today, spurred on in large part by dropping bond yields in the eurozone -- not to mention a rally here at home in the S&P 500 that’s nearing a bounce off of an important support level. I’ve been harping on the S&P’s climb for the last few months now. Too many investors are ignoring a rally that’s already accounted for around 90% of the gains in what’s already been a very good year from a historical basis.

That’s why we’re taking a fresh technical look at five new setups set to slingshot higher in this market.

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, 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.

 

Travelers

First up this week is Travelers (TRV), the $25 billion insurance company. Travelers has spent much of 2012 forming a bullish ascending triangle setup -- a trade that broke out in early August. Now, though, a throwback in shares is giving investors a second low-risk chance to buy this stock.

Put simply, an ascending triangle is a pattern that’s formed by a horizontal resistance level and uptrending support. The buy signal comes when shares push up above resistance. While that obviously already happened for TRV when shares moved above $64, the return back to test that former resistance line (the throwback I mentioned a minute ago) is a good thing for traders.

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That may seem surprising -- after all, shares have been sliding -- but a throwback gives TRV the chance to confirm the strength of its newfound support level at $64.

The ideal entry point comes on a bounce off of $64. While the bounce means that you’re sacrificing a few points of profits, it also greatly reduces the risks that TRV will slip through $64.

If you decide to be a buyer here, I’d recommend a protective stop just below the 50-day moving average.

Apple

Apple (AAPL) is one of those stocks that we come back to a lot in this column – that’s no great shock given the Cupertino, Calif.-based firm’s size. With a market capitalization of $628 billion, Apple weighs in as the biggest company in the world. And that size comes with plenty of trading setups.

The last time we looked at Apple, shares had just broken out above key resistance at $640, triggering a buy signal for investors. Now, with Apple’s hotly awaited Sept. 12 event just a week away (investors expect the firm to announce an iPhone 5 at the event), the big question is whether it still makes sense to buy shares here.

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The big answer is “yes.”

Like the trade we looked at in Travelers, Apple is forming an ascending triangle right now, just a very short-term one. Resistance comes in at $680 -- that’s the price we’ll want to see get taken out for Apple to spark a new buy signal. Momentum continues to look strong for AAPL right now, a fact that adds some extra confidence over the setup in shares.

While I’d recommend waiting for a bid above $680 before buying, an abundance of support levels reduces Apple’s downside pretty substantially right now. Either way, I’d suggest using a tight stop -- especially if the breakout happens before the Sept. 12 announcement.

Cracker Barrel Old Country Store

It’s been a strong year so far for Cracker Barrel Old Country Store (CBRL), a small-cap restaurant stock that’s been getting substantial attention from investors this week. So far in 2012, shares of CBRL have rallied more than 25%, pulling ahead of the rest of the restaurant industry by a huge margin.

Cracker Barrel is another ascending triangle trade this week. Resistance comes in at $64.50 for this stock, triggering a buy signal if shares can manage to close above that price.

Just so we’re clear, there’s nothing magical about “triangles” when it comes to a stock’s price chart. Instead, it’s what the triangle tells us about supply and demand that’s important for CBRL’s trading prospects. Resistance at $64.50 is a place where CBRL has been hitting its head on a glut of supply of shares, in other words, a spot where sellers have been more eager to sell and take gains than buyers were to buy. That’s why shares of CBRL have reversed off of $64.50 each of the last four times they’ve tried to move higher.

In an ascending triangle, the uptrending support level below resistance adds an important piece of information to our view of CBRL: It tells us that buyers are in control of shares at lower levels. A breakout above resistance means that buyers have won out, and managed to absorb all of the excess supply above $64.50.

With that price barrier taken out, buying becomes the high probability trade in this stock. That’s why we buy breakouts.

After CBRL breaks out, I’d recommend placing a protective stop just below support at the 50-day moving average.

Allstate

Even though the pattern forming in Allstate (ALL) is different, it works for the exact same reasons as Cracker Barrel’s triangle. Right now, Allstate is forming a rectangle, a consolidation pattern that’s common after a stock makes a large move. Allstate’s large move was the gap up that happened after its second quarter earnings call.

In short, a rectangle is just sideways price action that’s bounded by a horizontal resistance level to the upside and a horizontal support level to the downside. In Allstate’s case, resistance comes in at $38 and support sits at $37. Rectangles are considered “continuation patterns,” because they tend to resolve in the same way that price action was headed originally. In other words, the uptrend in Allstate before the rectangle formed suggests that ALL is in store for more upside.

I’d advise against trying to be early on the Allstate trade. With shares just under $38 resistance, a breakout is likely soon to come. Declining trading volume over the course of the pattern adds some extra evidence of that.

Stryker

The last trading setup we’ll look at today comes from the chart of Stryker (SYK), a $20 billion medical equipment maker. Stryker is currently forming one of the most well known trading setups out there: an inverse head and shoulders pattern.

While the inverse head and shoulders typically comes at the bottom of a downtrend (SYK isn’t in a downtrend), this setup is a good example of the idea that the actual supply and demand forces causing the pattern are more important than the picture on the chart. For Stryker, the buy signal comes on a push above the neckline at $55. Since SYK has flirted with that level for most of 2012, I’d recommend waiting for confirmation in the form of a close above $55 followed by a consecutive open above that level.

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.” Neutral RSI gives this stock plenty of room to run without getting overextended.

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.