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BALTIMORE (Stockpickr) -- "The future is uncertain; it is always a difficult time to invest." It feels like Blue Ridge Capital founder John Griffin was channeling this exact month when he made that comment.
Between the announcement of Janet Yellen as the new Fed Chairman nominee, the ongoing debt crisis debate, the start of earnings season, and new highs in volatility for 2013, traders are scrambling to try to make sense of the markets this month. And despite the fact that stocks are certainly still in correction mode right now, October hasn't exactly been a bloodbath for stock investors: the S&P 500 is only down around 2% since the start of the month.
So while there's no question that we're in another difficult time to invest, it's not quite as one-directional right now as many folks feel it is. That's creating some attractive trading opportunities in the biggest names on Wall Street right now.
We're taking a closer technical look at five of them today.
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 five high-volume stocks to trade this week.
Document solutions firm Xerox (XRX) has been quietly working its way higher since the start of 2013; year-to-date, the stock is up 50%. But the trend is far from over. Here's how to trade new highs in Xerox.
Right now, Xerox is forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance to the upside at $10.50 and uptrending support below shares. Basically, as XRX bonces in between those two technical levels, it's getting squeezed closer and closer to a breakout through that $10.50 level. When it happens, traders have a buy signal in shares.
Momentum, measured by 14-day RSI, adds some extra confidence to more upside in Xerox. The momentum gauge has been in an uptrend itself since the pattern started forming. If you decide to be a buyer on the breakout above $10.50, I'd recommend keeping a protective stop underneath the 50-day moving average. It's been a great proxy for support all the way up.
The outlook is a little less glowing over at retail giant Wal-Mart (WMT). That's because this $237 billion name is currently showing traders a descending triangle, the bearish opposite of the pattern in Xerox. Support for Wal-Mart currently comes into play at $72.50; if shares can't catch a bid above that price, then it's time to sell (or short) this big stock.
That doesn't mean a breakdown is a 100% foregone conclusion just yet. Shares slipped through $72.50 earlier this week, only to pop back into the pattern (the "bear trap" on the chart above). But a confirmed breakdown is certainly a sell signal.
Whenever you're looking at any technical price pattern, it's critical to think in terms of those buyers and sellers. Triangles, and other pattern names are a good quick way to explain what's going on in a stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.
That support level at $72.50 is a price at which there has been an excess of demand of shares; in other words, it's a place where buyers are more eager to step in and buy shares at a lower price than sellers were to sell. That's what makes a breakdown below that price so significant -- the move would indicate that sellers are finally strong enough to absorb all of the excess demand at that price level. Wait for that indication before you sell.
You don't have to be an expert technical analyst to figure out what's going on in shares of Visa (V) right now. The preeminent payment network is currently bouncing higher in a well-defined uptrend that's propelled shares since the start of 2013. This week, with shares testing that trendline support level for an eighth time, we're coming up on an ideal time to be a buyer.
But don't buy shares of Visa anticipating a move higher. Instead, wait for the bounce. Buying off a support bounce 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). And by actually waiting for the bounce to happen first, you're ensuring the Visa can actually still catch a bid along that line.
Remember, trendlines do eventually fail, and when this one does, you don't want to be holding the bag. We could very well get our bounce today in Visa. If you decide to buy, keep a tight stop in place.
2013 has been a pretty strong year for search giant Google (GOOG). Since the start of January, the firm has seen its shares rally more than 20%. But Google is starting to look "toppy" right now, after forming a bearish pattern since the start of the summer. Here's how to trade it.
Google is currently forming a head and shoulders top, a bearish pattern that indicates exhaustion among buyers. The setup is formed by two swing highs that top out around the same level (the shoulders), separated by a higher high in between them (the head). The neckline, depicted on the chart above, is the trigger level to watch -- a slip below that neckline means that it's time to sell (or short) this tech giant.
The neckline in Google is currently sloping. That means that as time progresses, the trigger price is dropping -- and so is the downside target if this trade does get kicked off. But we're perilously close to a breakdown this week, so I suspect we'll either see GOOG send out a sell signal or start to completely change its trend. Keep a close eye on this one.
Last up is PetroChina (PTR), the oil and gas giant based in the People's Republic. PTR is currently forming the bullish opposite of the setup in Google: an inverse head and shoulders pattern.
As with Google, the neckline level is sloping in PTR, and shares are extremely close to that breakout level right now. At the moment, the neckline price is right around $114, a level that's getting tested in today's trading session. If PTR can hold a bid above that upper blue line, then it makes sense to jump into shares.
If 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 both of these names in the next few sessions.
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.
Follow Jonas on Twitter @JonasElmerraji