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5 Big Stocks to Trade for Gains in This Market - 29614 views
BALTIMORE (Stockpickr) -- Stocks are giving investors another day of large losses today, mirroring the action seen overnight in European markets. Just when volatility seemed like it was starting to return to normal, the Mr. Market is throwing us a curveball once again.
From a long-term point of view, the klaxon horns aren’t sounding just yet. The S&P 500 set its tentative bottom last Tuesday -- and until that low price gets broken, any interim shakeouts aren’t technically significant sell signals for the broad market. For now, the so-called “relief rally” has provided the market with enough breathing room to work itself out without significant consequences.
Last week, betting on a support bounce in stocks provided us with meaningful gains in names like Apple (AAPL) and McDonalds (MCD). This week, we’re looking at trading opportunities in another set of big-name stocks.
More From Stockpickr
If you’re new to technical analysis, it’s important to remember that technicals are a study of the market itself; since the market is ultimately the only mechanism that determines a stock's price, technicals are 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 by some measures, skilled technical traders can bank gains as much as 90% of the time.
Every week, we take an in-depth look at large-cap stocks that are telling important technical stories. Here’s this week’s look at the technicals of five must-see stocks.
SPDR Gold Trust
With downside volatility coming back into stocks today, let’s start off with our old friend the SPDR Gold Trust ETF (GLD). This $74 billion fund is one of the most popular trading vehicles out there because of the fact that it mirrors the price of gold bullion by buying up physical gold that gets stored in its vaults. And as investors flee conventional investments for relative safety, gold has become one of the most popular options.
From a technical standpoint, gold is looking very attractive right now. I’ve been advocating building a position in GLD for the last month or two, prompted by the breakout in stocks that happened in early July. Even though gold has since turned parabolic, we’re at the edge of another breakout in this metal -- investors should be paying attention.
Gold prices hit some resistance earlier this month, only to start forming a bullish ascending triangle – a setup that indicates increasingly eager buyers are going to attempt to push through that resistance. In GLD, we’re looking for a breakout above $175; it looks like we’ll get that buy signal today.
This metal still has some shine left in it.
General Electric (GE) wasn’t spared from the selling of the last few weeks. Instead, this stock’s high correlation with the S&P 500 meant that it mostly mirrored the broad market as investors unloaded equities. But GE looks primed to bounce back harder than its peers. Here’s how.
Basically, GE found hard support at $15 per share. That means that shares of this $172 billion conglomerate look cheap to investors when prices approach $15 -- and demand floods the market for GE’s stock. That bottom at $15 gives us reasonably limited downside risk in this name right now. After finding a bottom, shares consolidated for a couple days, then broke higher as the market posed its “relief rally”. A push above that consolidation range on Monday is our rationale for going long this stock.
That said, it’s important to practice some buying discipline in GE. Shares are likely to throw back and retest newfound resistance just below $16 today -- I’d recommend waiting to buy shares on the first white bar day. Keep a protective stop just below that $15 low.
As one of the biggest financial names on the market, it’s no surprise that Citigroup (C) has been getting a lot of attention from investors and traders lately. But most of that attention has been for naught -- this stock has been tough to trade in the last couple of months. That’s finally changed.
Right now, Citigroup is forming a symmetrical triangle, a setup that indicates volatility is declining in shares of this stock. When volatility declines to this degree, though, it’s not a signal for safety. Instead, it’s a situation known as a volatility squeeze; it suggests that volatility is going to flood back into shares quickly. That’s when we want to take a trade on this stock.
Statistically, symmetrical triangles are commonly continuation patterns. That means that Citi is potentially due for a large downward move to end this week. Even so, the high probability trade is to wait for shares to exit the triangle, then trade in the direction of the move. I can almost guarantee that Citi will break below the channel today -- when it happens, consider going short with a stop loss at the upper trendline of the triangle.
Meanwhile, Norway’s oil giant Statoil (STO) has been locked in a downtrending channel for the last several months. A channel is beneficial to us because it provides traders with highly predictable price behavior -- shares are likely to bounce lower when they hit resistance, and they’re likely to bounce higher when they hit support. Right now, the shares of Statoil are testing trend line resistance, offering an attractive trade opportunity.
The classic trade in Statoil would be to short on a bounce lower as the stock hits its head on trend line resistance. While that’s a perfectly fine option, I think that the more interesting trade in this stock would be to wait for a breakout above the channel, then go long. A trend line break indicates that the prevailing trend in STO is reversing -- and it’s a shift that investors will want to get behind.
Obviously, only one of those outcomes will actually happen. Just remember that how you trade it isn’t going to be based on your preference (long vs. short) -- instead, it’s going to be dependent on how Statoil interacts with the glut of supply of shares that exists at that resistance level.
Statoil is one of TheStreet Ratings' top-rated oil and gas stocks.
Retail giant Target (TGT) is showing us an ostensibly bullish setup right now. This stock has been shellacked in 2011 as waning consumer sentiment shoved shares down more than 15% year-to-date. But that movement lower is actually forming a base for shares to potentially springboard off of. Here’s how.
Basically, Target has been forming a double bottom for the last couple of months. As the name implies, a double bottom is a reversal pattern that occurs before a move higher -- it’s identified by two bottoms in shares at approximately the same price level, with an intermediate peak in between them. The buy signal comes into play when shares breakout above that intermediate peak.
For Target, that peak coincides with the 200-day moving average right now. Shares attempted to break above that price level in yesterday’s earnings-fuelled buying, but shares slid lower as the trading day progressed. That means that a breakout in this stock could take a bit longer to develop, but it shouldn’t be ignored. When it happens, I’d recommend a protective stop just below $50.
Target is one of the highest-yielding retail stocks.
To see this week’s potential trades in action, check out the High Volume Technicals 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.