Stock Quotes in this Article: BHP, BRK.B, HSP, IBM, PII

BALTIMORE (Stockpickr) -- Here we go again. The latest round of Fed minutes revealed that a QE taper might be in the works, kicking speculation into full gear again and posting moderate losses for all three major indices yesterday.
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If the Fed starts shutting off the faucet, it puts the stock rally at risk -- or at least that's what investors are worrying about.

But what else is new? There's constantly been some big black cloud grabbing the market headlines all year long. But from a technical standpoint, this rally isn't showing any signs of slowing just yet. Focusing on high-probability trades is still the key to wringing out gains in the final quarter of the year, taper or not.

Today, I'll show you a closer technical look at five of them.

If you're new to technical analysis, here's the executive summary.

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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 this week.

Polaris Industries

Shareholders in Polaris Industries (PII) are having a stellar year in 2013; shares of the $9 billion ATV manufacturer are up more than 55% since the calendar flipped over to January. But even if you missed the move, you shouldn't ignore this stock. PII looks like it's still got higher ground ahead of it.

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That's because Polaris is currently forming an ascending triangle pattern, a bullish price setup that's formed by a horizontal resistance level above shares at $137 and uptrending support to the downside. Basically, as PII bounces in between those two technical levels, it's getting squeezed closer and closer to a breakout above $137. When that happens, we've got a buy signal in shares.

Relative strength has been in an uptrend since the start of the summer, a fact that adds some extra confirmation to the trade. Polaris has been outperforming a serious bull market. If you decide to take the $137 breakout, I'd recommend keeping a protective stop on the other side of the 50-day moving average.

Berkshire Hathaway

Despite all of the attention on Berkshire Hathaway's (BRK.B) portfolio this week, the stock itself is showing some cracks. That's because Berkshire is forming the exact opposite trading pattern from the one in Polaris right now. Here's why buyers should beware.

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Berkshire is currently forming a descending triangle pattern, the bearish opposite of the ascending triangle in PII. The descending triangle is formed by downtrending resistance pushing down from above shares and horizontal support to the downside, in this case at $111. A breakdown through $111 is Berkshire's sell signal.

A parabolic drop in relative strength since June indicates that Berkshire has been woefully underperforming the S&P 500 in recent months -- you can see it from the stock's inability to make new highs in November. Buyers look anemic here, but failure to catch a bid at $111 is the start of something bigger.

Don't sell unless Warren Buffett's baby unless shares fall through that price floor.

Hospira

Pharmaceutical firm Hospira (HSP) hasn't done much since July; shares have been trading sideways for months now. But even though Hospira hasn't really participated in the recent rally, there's still a trade to be made here.

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Hospira is currently forming a rectangle pattern, a price setup that's formed by a horizontal resistance level above shares at $42 and another horizontal support level down at $38.50. The rectangle gets its name because it essentially "boxes in" shares. The high-probability trade comes when HSP exits its channel -- a move through $42 is a buy signal, whereas a drop below $38.50 is a signal to sell.

Whenever you're looking at any technical price pattern, it's critical to think in terms of those buyers and sellers. Rectangles, triangles, and other pattern names are a good quick way to explain what's going on in a stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.

That $42 resistance level, for example, is a price where there has been an excess of supply of shares; in other words, it's a place where sellers have been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above it so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.

Sit on the sidelines until HSP breaks outside of the rectangle.

BHP Billiton

You don't have to be an expert technical analyst to figure out what's going on in shares of mining and petroleum giant BHP Billiton (BHP) -- the setup in the $112 billion stock is about as basic as it gets. BHP has been bouncing higher in an uptrend since July, hitting a floor on a trendline support level all the way up to today's close.

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The channel in BHP is important because it provides us with a high-probability range for shares to stay within both on the upside and the downside. More important, trendline support has halted shares' pullbacks perfectly on the last four touches of the level – now we're hitting touch number-five.

A bounce in today's session is the buy signal in BHP.

Buying off a support bounce makes sense for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, we're ensuring the BHP Billiton can actually still catch a bid along that line.

Keep a tight stop in place under the channel if you decide to buy here.

IBM

At first glance the price action in IBM (IBM) looks like it's the opposite of the uptrending channel in BHP -- but a small divergence makes a world of difference for anyone who owns IBM right now. Sure, IBM is trending lower, but its trendlines are converging, indicating that buyers on the downside are halting the selling more quickly in this stock.

The setup in IBM is called a falling wedge, and it's a reversal trade. This pattern has historically been a significant setup to watch – one study puts the falling wedge's ability to spot a reversal at more than 90%. The buy signal comes on a breakout above resistance, a level that IBM is currently testing. Don't be early on this trade -- obviously, IBM could fall materially further and remain within the wedge before a breakout does happen.

When and if shares break above resistance, I'd recommend keeping a protective stop on the other side of IBM's 50-day moving average.

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.

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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