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5 Big Trades After the Fed Meeting - views
BALTIMORE (Stockpickr) -- Yesterday's Fed meeting was a more hotly anticipated event than last year's Spider-Man remake. But like the movie, Bernanke's statement was just a carbon copy of what we'd already seen. The market at least provided some excitement in the minutes that followed.
Just like nothing has changed with the Fed's stance on stimulus, nothing much has changed with stocks either. The big indices remain in rally mode in spite off yesterday's hiccups. And that fact is creating opportunities for traders right now.
After all, if we're supposed to expect more of the same, then the rally that's propelled the S&P 500 15% higher in 2013 is worth getting another helping of. To take full advantage, we're focusing in on five new technical trades heating up infive huge stocks.
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.
SPDR S&P 500 ETF
First up is the most investible proxy for the broad market itself: the SPDR S&P 500 ETF (SPY). Since November, the S&P has been in a textbook channel rally -- and SPY has been bouncing higher right alongside it. Despite the investor anxiety that's been plaguing the broad market, stocks have been propelled higher by structural forces, including the moved made over at the Fed.
But from a trading standpoint, those causes are a whole lot less important than the effect: a supremely tradable market.
You don't have to be an expert technical analyst to figure out what's going on in SPY. The trend channel has done a stellar job of describing this ETF's price action all the way up. I've said before that we're in a "buy-the-dips market." Well, we saw a dip this week. Who's buying?
The 50-day moving average has acted as a critical support level for this rally. If it gets violated, we've got an intermediate short signal in SPY. Until then, keep on buying those dips.
BlackBerry (BBRY) hasn't exactly had the same upward trajectory in 2013. Sure, shares of the $7.4 billion handset maker are up almost 20% year-to-date, but they're well off their January highs. Just don't let that price action dissuade you from thinking that this is still a tradable name this summer.
That's because BlackBerry has been coiling in a symmetrical triangle pattern for the entire year. The symmetrical triangle is a setup that's formed by trendline support and resistance levels that are converging at more or less the same rate. As shares bounce between those technical levels, shares are getting squeezed closer and closer to a breakout. When that happens, the high probability trade comes from taking a position in the same direction as that initial move.
BBRY's setup has a couple of important implications. First, it's an extremely long-term setup, a fact that also means that BBRY comes with longer-term trading implications. In other words, expect the move following the breakout to last a while. Second, the constricting action of BBRY's triangle is setting shares up for a volatility squeeze. Since volatility is cyclical, periods of very low volatility are typically followed up by a swing to high volatility. That means that BBRY's initial move is going to be very fast don't miss it.
We're seeing the exact same setup in shares of Morgan Stanley (MS) right now -- just in the very short-term.
It's more correct to call the price action in Morgan Stanley a "pennant" pattern because of its short-term timeframe. No matter what you call the setup, the trading implications are exactly the same: Buy the breakout above resistance or sell the breakdown below support.
Because MS' setup is shorter-term, it's a little more predictive than the one in BBRY. Pennants are often called "half-mast patterns" because a breakout to the upside generally results in another move that's equal to the first -- that would spell considerable upside if MS pushes through the resistance level at the top of the chart.
I'd put an aggressive price target at $34. If and when that breakout happens, it makes sense to keep a protective stop just below $25 support.
With a pending merger deal ongoing at NYSE Euronext (NYX), it'd be easy to write this stock off as not tradable. After all, acquisition targets tend to have hard resistance levels at their offer prices, a barrier that dramatically limits upside -- but not in this case. Since NYX's shares are getting indexed to shares of acquirer IntercontinentalExchange (ICE), and because there's ample time until the deal closes, this stock is still tradable.
That's a good thing because of the bullish price action that's currently showing itself in shares of the world's most storied exchange owner.
NYX is currently forming an inverse head and shoulders pattern, a setup that indicates exhaustion among sellers. The inverse head and shoulders is formed by two swing lows that bottom out at approximately the same level (shoulders), separated by a deeper trough between them (the head). The buy signal comes on a breakout above the neckline, which was $41 for NYX. That buy signal triggered at the start of this week.
A minor correction is giving traders a second chance at a low-risk entry in NYX. I'd recommend going long this name on the next white bar day. Just keep a tight stop at the 50-day moving average.
While NYX has rallied hard in 2013, this year has been a bloodbath for Facebook (FB). The 8% drop in shares since January doesn't look horrific on its surface, but when you factor in the 15% rally in the rest of the market over the same period, the underperformance is cringe-worthy. Well, it finally looks like shareholders could be due for a reprieve.
FB is another name that's forming an inverse head and shoulders pattern. The key difference is that FB's pattern is a little bit more textbook since it comes in at the bottom of the stock's recent price range, rather than the top. FB is a little less far along than NYX; the buy signal comes on a move above the neckline at $24.60.
Momentum adds some extra confidence to this trade. 14-day RSI reversed its downtrend at the start of this month -- a new uptrend in this momentum gauge is a bullish signal, but it's not a buy signal just yet. That doesn't happen until the neckline gets taken out. When it does, I'd suggest keeping a stop under the right shoulder.
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
Follow Jonas on Twitter @JonasElmerraji