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5 Big Trades to Take Right Now - views
BALTIMORE (Stockpickr) -- So much for the stock market free-for-all that was supposed to come with the Fed's plan's not to taper. Yesterday, stocks closed down for a fifth straight day, quite a streak in 2013.
To be fair, the market hasn't exactly been moving straight down. But since Bernanke and company announced that they'd continue their buying programs, the S&P 500 has actually lost 1.9% of its value.
Heh, if the market had priced in the taper -- as so many argued it had -- then you could make a case that stocks are actually pretty cheap right now.
All of this week's drama from the financial wires and Capitol Hill and aside, we're still in a vey tradable market right now. That's especially true in a handful of the biggest names on Wall Street. That's why we're taking a closer technical look at five of them today.
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 this week.
First up is Chevron (CVX), the large-cap oil and gas supermajor. Chevron has spent most of the year in a well-defined uptrend, but lately shares have been tracking more sideways than upwards. Here's why that's actually a good thing for investors right now.
Chevron is currently forming an ascending triangle pattern, a bullish setup that's formed by horizontal resistance above shares at $127 and uptrending support to the downside. Basically, as CVX bounces between those two technical price levels, it's getting squeezed closer and closer to a breakout above that $127 level. When that happens, traders have a buy signal for shares.
A lot of Chevron's fortunes are tied to commodities like oil and gas. As an integrated energy firm, CVX has its hands involved in every step in the process from pulling resources out of the ground to selling them at retail. But price action is providing traders with a shortcut for figuring out Chevron's next steps this fall. If you decide to buy the $127 breakout, I'd recommend keeping a protective stop right above the 200-day moving average.
The exact same trade is in play in shares of Citigroup (C) right now. Like Chevron, the $150 billion bank is forming an ascending triangle pattern, in this case with horizontal resistance coming into play at $53. A breakout above $53 is the signal that it's time to be a buyer in Citi.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. Triangles and other price pattern names are a good quick way to explain what's going on in this stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.
That resistance line at $53, for example, is a price where there is an excess of supply for shares; in other words, it's a place where sellers have been more eager to sell and take gains than buyers have been to buy. That's what makes a confirmed breakout above $53 so significant. It means buyers have finally wrestled control of this stock.
Wait for the breakout before jumping in.
Things aren't looking quite so auspicious in shares of retail behemoth Wal-Mart (WMT), and you don't have to be an expert technical analyst to see why. WMT has been trading lower in a downtrend for the past four months, shedding around 7% in the process while the S&P kept pushing higher. And if you haven't already sold, now looks like the time to do it.
Wal-Mart's downtrending channel has provided a high-probability range for shares on the way down. Trendline resistance has acted as a ceiling for shares on the last three tests since May and with shares hitting their head on that resistance level this week, now's the optimal time to sell (or short) this big box store giant.
Momentum, measured by the 14-day RSI line, has been holding a downtrend of its own since early this summer. Since momentum leads price, it's going to be the level to watch for either a reversal or an acceleration of the trend.
Pfizer's (PFE) chart hasn't been much different from Wal-Mart's since the summer began -- this stock too is in a textbook downtrend right now. Both charts started their downtrends around the same time in early May, both saw the same brief move below the channel in late June, and now both are bumping their heads on trendline support. Historically, that's been a very good time to sell both stocks.
With the S&P 500 still in a primary uptrend, it's worth thinking about how long Wal-Mart and Pfizer can continue to have negative correlations with the big index. After all, we're talking about two huge blue-chip names. The answer is likely not forever. But in the meantime, both of these names continue to be performance drags both from a relative and absolute basis.
No matter how the fundamentals look in the near-term, I wouldn't even think about owning either one until the downtrend gets broken. And that only happens when trendline resistance gets taken out by increasingly eager buyers.
Things have been looking a whole lot stronger for Alcatel-Lucent (ALU). The Paris-based communications stock has rocketed more than 150% since the calendar flipped over to January, tearing higher in a volatility-fuelled parabolic move. But all good things must come to an end, and that's where we're left with ALU this week.
Maybe "end" is too strong of a word for ALU's price action. While the parabolic uptrend in shares has paused, it's too early to call the move over. That's because in the short-term, ALU is forming a consolidation pattern called a rectangle. Consolidations are common after big moves higher; they give traders a chance to catch their breath and figure out what's next.
The rectangle gets its name because it effectively "boxes in" a stock's price action between two horizontal levels -- when a stock breaks out from the range, it becomes tradable. ALU's levels are resistance at $3.60 and support at $3.30. In a nutshell, a confirmed move through $3.60 is the buy signal for Alcatel-Lucent, and it's likely we'll get the green light on the trade in today's market session.
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 was long AAPL.
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