BALTIMORE (Stockpickr) -- The first trading day of May is upon us. Now the question is whether market participants will show us the “new month, new market” mentality that’s made trading so unexpected in 2012.
But with the S&P 500 down 0.75% for the month of April, that might not be such a bad thing.
Mr. Market’s not providing us with many clues this morning, thanks to a fairly flat open in stocks. And this month, with correlations in the S&P starting to tick higher again, trading could become more challenging as more stocks start to technically look the same. Earnings are still the crucial fundamental force at play this week, driving investors’ valuations of the companies in their portfolios. As long as corporate profits continue to handily beat Wall Street’s expectations, bulls should stay in good shape.
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Meanwhile, we’re scouring the market again for the most attractive technical setups on the market this week.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Here’s a look at five technical setups that could deliver breakout gains to your portfolio this week.
Mosaic
First up this week is $22 billion fertilizer stock Mosaic (MOS), a stock that’s had a rough run of it in the last month thanks to earnings that disappointed Wall Street. Even though Mosaic has been trading lower in the very short-term, the bigger picture on this stock still looks bullish thanks to an ascending triangle setup in shares.
Here’s how to trade it.
Right now, Mosaic is stuck between resistance at $60 and uptrending support sitting below shares. As shares of MOS bounce in between those two technical levels, they’re getting squeezed closer and closer to a breakout above that $60 resistance level. When the breakout happens, traders have their high-probability buy signal for shares.
Momentum, measured by MOS’ 14-day RSI, adds some extra confirmation to this setup -- it resumed an uptrend back at the start of April as shares bounced off of support.
I’d strongly recommend waiting for MOS to break out above $60 before taking a position in this stock.
Mosaic shows up on a recent list of 8 Fertilizer Stocks Primed for Growth.
Bank of Montreal
We’re seeing a similar setup this week in shares of Bank of Montreal (BMO). Coincidentally, the resistance level to watch is also at $60. That price has acted as a resistance level for BMO since all the way back in September, an indication that there’s an overwhelming glut of supply of shares at and above that price. Put more simply, $60 has historically been a price above which sellers become more eager to sell and take gains than buyers are to buy.
Our buy signal comes above $60, when that glut of supply has been absorbed by buyers.
Even though resistance has been at $60 for months now, BMO’s ascending triangle is a much shorter-term setup than the one in Mosaic. That also means that the trading implications are shorter-term.
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It’ll be important to act quickly once that level gets taken out. Then I’d recommend keeping a protective stop just below the 200-day moving average.
American Tower
American Tower (AMT) is a stock that’s already taken out its own glut of resistance. Shares materially broke out above resistance at $65 on Monday, tipping traders to the fact that the selling pressures that previously held AMT back at that price no longer exist.
Even though the breakout technically came through at the end of last week, the tiny ranges on Thursday and Friday show that traders were still anxious about whether there were still sellers above $65; it wasn’t until Monday that the move was confirmed by a material push higher where AMT closed on highs.
Until the breakout, shares had been forming an “if/then trade,” a sideways setup whose price action was contingent on which way AMT broke out of the channel. As of yesterday, this stock is a buy.
If you decide to take the AMT trade, I’d recommend placing a protective stop just below the 50-day moving average.
I also featured AMT recently in "5 Big Stocks to Trade for Gains."
Lockheed Martin
Breakouts aren’t the only trades that are popping up on our radar this week. Lockheed Martin (LMT) is a good example of a range trade that’s approaching an optimal entry point for buyers in the next few trading sessions.
For the last six months or so, Lockheed has been stuck trading in an uptrending channel, bounded by trend line support and resistance. The fact that LMT tested those two dynamic support and resistance levels several times successfully indicates that it’s easier to trust the technical cues that this stock sends out. With LMT testing trendline support, now could be an ideal time to buy.
If you’re looking to take a position in LMT, it’s absolutely crucial to wait for shares to bounce higher in the channel. While support is the ideal place to be a buyer, support levels do fail eventually, when that happens, you don’t want to be left holding the bag. The bounce confirms that LMT can still catch a bid at and below support.
The 50-day moving average has been a good proxy for trend line support this whole time -- it’s a good, objective place to place a protective stop below.
Lockheed Martin was also featured recently in "5 Stocks Setting Up to Break Out."
Motorola Solutions
Last up this week is Motorola Solutions (MSI), another uptrending channel that’s becoming tradable right now. Like Lockheed, MSI has been stuck in an uptrending channel for the better part of the last six months, bouncing higher every time shares went low enough to test trend line support. While MSI isn’t as close to a support bounce as LMT is, this stock is pulling back just enough to give traders a second chance at a low risk entry.
Wait for shares of Motorola Solutions to get close to trendline support again before becoming a buyer. Then, like with LMT, wait for that bounce.
To see this week’s trades in action, check out the Technical Setups for the Week 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, 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.
