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BALTIMORE (Stockpickr) -- Investors can breathe a collective sign of relief this morning -- for now.
Buyers are coming back into the market on Thursday, as Greece’s biggest step toward restructuring relaxes some of the biggest worries about stocks. The Greek debt swap has already been agreed to by the majority of the country’s lenders, a critical factor in making yesterday’s bounce stick in the S&P 500 and the Dow.
While it’s “Data Thursday” today, Wall Street is expecting fairly limited economic numbers today. That’s why the good news from Greece is so timely. That being said, jobs, Fed balance sheet and money supply data, and treasury auctions are all still going to be market-moving events for stocks today; if numbers can manage to come in above expectations, they could add some fuel for this late-week rebound.
From a technical analysis perspective, pullbacks (like the one we saw this week) are an integral part of rallies; so, the selling we saw to start the week is actually a healthy thing for the broad market. Now, if buying pressure can help the S&P stick above resistance, we could be about to set out on the next stage of this 2012 rally.
To take full advantage, we’re turning to the technicals in five of Wall Street’s big-name stocks this week.
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 large-cap stocks that are telling important technical stories. Here's this week's look at the technicals of five must-see stocks.
It’s been a tough year for shareholders of IT networking firm Juniper Networks (JNPR) -- shares of the $11.3 billion stock have shed more than 51% in the last 12 months. But this stock’s selling could be coming to an end in 2012 thanks to a bullish pattern showing up in shares.
Juniper is forming an ascending triangle bottom right now, a pattern that’s identified by a horizontal resistance level above shares and uptrending support below them. Essentially, as Juniper bounces in between those two technically-relevant price levels, the potential for a breakout above resistance increases dramatically; that’s when traders get the green flag to buy JNPR.
Right now, the key levels to watch are resistance at $25 (our breakout level) as well as another resistance level at $30. The $30 resistance level saw shares gap down below it back in August -- it’s a reasonable upside target for shares on a break above $25.
When the breakout does happen, I’d recommend keeping a protective stop right at the 50-day moving average.
Juniper shows up on a list of Tech Stocks to Look Out For in 2012.
Energy Transfer Partners
The exact opposite setup is taking place in shares of Energy Transfer Partners (ETP), a $10.5 billion natural gas MLP. Right now, ETP is forming a descending triangle. Unlike its bullish counterpart, this pattern is formed by a horizontal support level with downtrending resistance above shares. A breakdown below $46 support is the signal to go short this stock.
Investors got an early warning on ETP when momentum, as measured by 14-day RSI, broke its uptrend and moved into a downtrend. Because momentum is a leading indicator of share prices, a breakdown in RSI tends to be a good red flag to watch for.
It’s important to note that a descending triangle doesn’t mean that ETP is likely to move lower -- at least until shares break support at $46. Until then, this MLP could escape its fate by breaking above that downtrending resistance level in shares.
Ultimately, a breakdown below support signals that market conditions (supply and demand) make it a lot easier for ETP to move lower than higher; that’s the idea behind a “high probability” trade.
ETP shows up on a recent list of Natural Gas Stock Trades That Look Past Low Prices.
Macy’s (M) has been in rally mode this year. Shares of the storied department store chain have moved nearly 20% higher since the start of 2012, and they’re positioned to keep it up in March. Here’s why.
Right now, Macy’s is stuck in an uptrending channel, a tight range bounded by dynamic support and resistance levels. Of particular importance is the fact that Macy’s has managed to hit trendline support and then bounce higher at least six times since late August. That tells us that there’s considerable demand keeping shares moving higher. With shares touching support right now, we could be seeing an ideal entry point for longs as shares climb the channel again.
Resistance at R1 has been constraining shares within their channel for the last couple of months. Even so, it’s not as significant as trend line resistance above it; a breakout above R1 would likely mean that Macy’s will move to test trend line resistance again.
With shares bouncing on support today, now might be a good time to take a starter position in Macy’s. Just keep a protective stop right below the channel.
Macy's, one of the top holdings of David Tepper's Appaloosa Management, shows up on a list of Consumer Discretionary Stocks Bought and Sold by Hedge Funds in the most recently reported quarter.
We’re seeing a pretty similar setup in Enbridge (ENB) right now. Like Macy’s, this energy transportation firm has been stuck in an uptrending channel since late August -- and shares have bounced off of support no fewer than five times in the process. With shares touching support for a sixth time, longs could be looking at an optimal entry in this stock.
The most important part of buying an uptrending channel trade is “the bounce.” Ultimately, investor sentiment is constantly changing and trend line support levels do eventually fail. A bounce off of trend line support tells us that demand still exists below that dynamic support level, and that buying comes with limited risk of a downside move. It may be tempting to buy ENB on the way down, as it comes as close to support as possible, but that sort of a buying strategy only exposes you to more risk.
Waiting for a bounce usually means that you’re sacrificing a couple of points in favor of getting in on a high-probability trade, but that’s a tradeoff that’s worth making every time. The 50-day moving average has been acting like a strong support level for the last few months -- it’s a good objective place to keep a stop loss level if you decide to buy ENB.
“Churning.” That’s the best way to describe HSBC Holdings’ (HBC) price action since the start of August. Shares have essentially been locked in a horizontal channel between $36 and $46 for that whole time, testing support and resistance two times each along the way. But there are some solid trading implications to this range right now.
Right now, HSBC looks like it could be forming any number of long-term technical patterns -- a double bottom, maybe a triple top. But here’s the thing: The trading implications of any of those patterns are exactly the same; it’s a perfect example of the idea that individual patterns aren’t as important as the market factors that are causing them. In my view, the best way to treat this HSBC setup is like an if/then trade.
Put simply, an if/then trade is a setup whose direction is contingent on how shares move out of their channel. So, if HSBC pushes above resistance at $46, then buy. Otherwise, if the stock breaks down below support at $36, then this stock becomes a short candidate.
With shares sitting just under resistance and RSI in a sustained uptrend, the upside trade looks more likely for March -- but until one of those if/then conditions gets met, I’d recommend sitting on the sidelines in HBC.
To see this week’s 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.