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5 Big Stocks to Trade for Gains - 56394 views
BALTIMORE (Stockpickr) -- Stocks are settling into a sideways consolidation this week, as investors hold back capital until major market concerns -- such as the U.S. debt ceiling -- are resolved by the people in Washington D.C.
It shouldn’t come as a huge surprise that investors are sitting on the sidelines right now. 2008 left scores of market participants gun-shy about stocks -- and the high-stakes politicking on Capitol Hill isn’t doing much for their confidence this summer. Still, investors shouldn’t ignore some of the bullish signs working themselves out on Wall Street.
Of course, earnings season is underway -- and exceeding expectations en masse for yet another quarter. At the same time, the market is showing signs of technical strength, with the confirmation of a critical trend line support level at the end of June and chances for a retest of 1350 resistance at the end of this month. Yes, this still could be a big month for bulls -- and that’s showing in the technicals of some of Wall Street’s biggest names.
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In case you’re not familiar with technical analysis, 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.
Apple (AAPL) is a perfect example of a large-cap name that’s absolutely on a tear right now. Shares gapped up hard yesterday on amazing earnings numbers, tacking extra gains on the breakout level that shares pushed through on Monday. Traders and investors alike are paying serious attention to Apple right now -- the only question is whether it makes sense to buy shares at this point.
Clearly, Apple is a stock that investors want to get behind on a fundamental level. That has important technical implications. Shares of Apple have rallied nearly 8% since the breakout “buy” signal on Monday or the runaway earnings gap yesterday. That quick price appreciation means that momentum is getting overbought right now. If you’re looking to get a lower-risk entry into Apple’s shares, I’d suggest waiting for some semblance of consolidation, then buying on a break above the stock’s near-term range.
By doing that, you’ll be sitting out on some gain potential in this stock – but you’ll also dramatically decrease the downside risks of building a position in a momentum stock like Apple.
Online services giant Google (GOOG) is another tech stock that’s seeing a major breakout right now -- one that perfectly illustrates the same entry strategy you’d want to take with Apple. Shares of Google had been locked in a downtrend for most of 2011, but last week’s earnings gap definitively shoved shares out of that bearish setup. That breakout above trend line resistance has long-term bullish implications for Google right now.
The gap pushed shares up by double digits and started consolidating just below the $600 level, leaving investors to digest the move. From a psychological standpoint, $600 is an important resistance level -- one that’s also an entry target if Google can sustain a push out of its tight consolidation range this week.
Every day Google sits between $590 and $600, shares are bleeding off their overbought momentum. That’s likely to help traders gain confidence in the stock’s ability to push higher. When and if Google manages to push through $600, I’d suggest a protective stop right where the company’s price action re-enters that gap.
2011 has proven to be a challenging year so far for shares of engineering and construction firm Fluor (FLR). Shares of the $11.43 billion company have underperformed the S&P 500 by nearly 7% year-to-date as capital flows reversed and investors pulled profits from the market. But don’t count Fluor out just yet -- the tide could be turning for this stock.
That’s because shares of FLR are retesting trend line resistance right now, a move that’s likely to still be in place when the company announces earnings during the first week of August. A push above trend line resistance in Fluor has the same bullish implications as the one that moved Google after earnings -- so it’s certainly worth watching for a breakout above that trend line.
If you do decide to take a trade in Fluor, it’s important to wait for shares to push above the upper trend line – and stay there. If they do, I’d suggest a protective stop just below the 50-day moving average.
Flour is one of TheStreet Ratings' top-rated construction and engineering stocks.
Meanwhile, AT&T (T) is presenting traders with a solid “if/then setup” right now. Put simply, an if/then setup is a technical formation that’s bounded by horizontal resistance to the upside and horizontal support below (also called a consolidation channel). The setup gets its name because the trade to take is contingent on the price action of shares:
If shares break above resistance, then buy. If shares fall below support, then short.
In the case of AT&T, today’s earnings could be a catalyst to get a move going toward one of those technical price levels, but I doubt they’ll spur and actual breakout themselves. Instead, news on the T-Mobile merger is likely to be a more important factor in making this stock a tradable setup.
Don’t try to anticipate a breakout on news -- instead, wait for an objective buy or short signal to come from the stock’s movement.
Last up this week is a vestige from last week’s Must-See Charts column: computer giant IBM (IBM). Last week, we were looking at a throwback in IBM that brought shares to retest newfound support at $172.50. I recommended going long on signs of intraday strength with a protective stop at around $172.
Since then, shares have rallied (accelerated by strong earnings numbers on Monday), showing us gains of more than 4% in this $224 billion monolith while the S&P 500 barely held its head above water. So if you’re still holding shares, what should you do now?
IBM has moved significantly higher in the past few months -- if you bought shares last Thursday as a short-term trade, now may be a good opportunity to take gains. That said, if you’re looking to hold for fundamental reasons over a longer time horizon, just consider the throwback trade a “discount” on your cost basis.
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.