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BALTIMORE (Stockpickr) -- No news is proving to be good news for stocks in November. The problem is that there's news hitting Wall Street again this morning.
Europe is officially back in a recession for the second time in four years, as the ongoing drama in countries like Greece offsets paltry GDP gains in Germany and France. EU markets are taking the news mostly in stride this morning, the STOXX 50 only off 55 basis points as I write. Meanwhile, U.S. stocks are keeping up the correction that's been in force since October.
But not everything is moving lower right now. A handful of big stocks have promising trading setups popping up this week, which is why we're taking a technical look at five new must-see charts today.
If you're new to technical analysis, here's the executive summary.Facebook
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 to trade for gains.
First up is Facebook (FB). I feel like every time I mention Facebook, I need to preface it by saying that I'm no fan of this stock. Yes, there are plenty of factors working against this firm right now, and they've all been beaten to death. But with Facebook's shares showing some technical strength this week, it doesn't really matter how anyone feels about the stock -- there's a trade to be made here.
Yesterday, Facebook surprised everyone when it rallied more than 12% after its lockup expired. But in the context of FB's recent price action, the move isn't hugely surprising -- FB has been slowly forming an ascending triangle bottom since August.
This setup is formed by horizontal resistance at $23.50 and uptrending support coming in below shares. As FB bounces in between those two technical price levels, it's getting squeezed closer and closer to a breakout above that resistance level at $23.50 -- when that happens, we've got a buy signal.
Market momentum, measured by 14-day RSI, has been giving us some extra evidence towards the setup in FB -- it's been in an uptrend since early August, well before the bullish setup in shares was fully formed.
Since momentum is a leading indicator of price, that's a good sign. I wouldn't touch FB until $23.50 gets broken. Even then, keep a tight stop.
Sanofi (SNY) has the opposite problem right now. Shares of this pharma giant have been in an uptrend since the broad market bottomed in June, rallying more than 25% in the process.
But that sort of upward momentum can't last forever -- and shares of SNY have been consolidating sideways in a rectangle pattern since mid-September as a result.
So, how do you trade this big pharma firm?
For starters, it's important to remember that consolidations like the one in SNY aren't necessarily a bad thing, especially after a big move.
A sideways move after a big rally gives investors a chance to catch their breath and figure out their next move.
More importantly, it gives the stock a chance to establish support before moving higher.
That doesn't mean that SNY is a buy right now -- instead, it's best to think of the rectangle as an "if/then trade."
So, if SNY breaks out above $45 resistance, then buying pressure has overcome a pocket of gains-taking sellers, and traders have a buy signal.
Otherwise, if shares of SNY fall down below $43 support, then it becomes a short candidate.
The exact same setup is shaping up in shares of London-based specialty publisher Reed Elsevier (RUK). Like SNY, Reed Elsevier has been rallying since June, climbing more than 30% since the start of the month.
And also like SNY, this stock has been consolidating sideways in a rectangle since the beginning of fall.
In Reed Elsevier, the resistance level at the top of the rectangle comes in at $40, and support is at $38.
So, the same if/then rules apply: if RUK breaks out above $40 resistance, then buying pressure has overcome a pocket of gains-taking sellers, and traders have a buy signal.
Otherwise, if shares of RUK fall down below $38 support, then it becomes a short candidate.
Either way these two trades resolve, I'd recommend keeping a protective stop back just within the rectangle after the breakout happens.
Steel maker Nucor (NUE) is another stock that's been trending higher since the summer bottom in stocks -- only this firm hasn't been consolidating sideways. Instead, Nucor's uptrend is still very much intact.
So, with an uptrending channel in play, should you buy this stock now? Nope.
Ultimately trendlines break, and if NUE's does, you don't want to be left holding the bag. That's why it's important to actually wait for the bounce off of trendline support before buying this stock. Clearly, the best time to buy a stock that's in an uptrending channel comes at support -- it's the place where shares have the furthest to move back up to resistance (the top of the channel) and where they have the least distance to move through support. Waiting for a bounce ensures that CCI can still catch a bid at that trendline. Since a breakdown below support means that the channel is broken, support is also a logical place to put a stop below to ensure minimal risk.
Not all of the setups we're looking at today are bullish -- we're capping things off with a bearish setup forming in Northeast Utilities (NU) right now. A quick glimpse at NU's chart should be enough to give traders a pretty good look at what's going on: shares hit their head on $40.50 resistance twice in the last several months, topping out as buying pressure got completely stomped out by sellers looking to take gains at that level.
In technical parlance, that's created a "double top" setup in NU. For a double top pattern, the sell signal comes when shares break down below the trough that separates the two peaks -- in NU's case, that price level is $36.50, a price that also acted as support way back in May. Now, $36.50 is the closest place where NU can consistently catch a bid -- if shares move below that level, then much more downside looks likely.
This is a longer-term setup, which means that it's got longer-term trading implications when and if it triggers. While that's unlikely to happen this week, it should pay off for traders who keep an eye on it.
To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
At the time of publication, author had no positions in stocks mentioned.