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5 Buy Signals From the Consumer Sector - views
BALTIMORE (Stockpickr) -- 2013 has been the year of the consumer stock. Over the course of the 15% S&P 500 rally that's taken hold since the start of the year, big consumer-driven names have posted significant outperformance. That's part of the reason why the Dow has outperformed the more diversified S&P by nearly 2% since the calendar flipped over to January.
As the market has bounced higher, consumer discretionary stocks have taken leadership in a big way -- and they've traded the torch off to consumer staples on every correction. Even though the slow trading of the summer is taking hold this month, there haven't been any signs to suggest that consumer stock favoritism is slowing down.
That's why we're taking a fresh technical look at five big consumer stocks today.
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.
So, without further ado, let's take a look at five technical setups worth trading now.
Bed Bath & Beyond
Housewares retailer Bed Bath & Beyond (BBBY) is squarely positioned in the consumer discretionary group -- and its price performance proves it. Shares of the $15 billion firm have rallied close to 30% year-to-date. Now it looks like BBBY could be in store for another higher ground.
That's because Bed Bath & Beyond is currently forming a rounding bottom pattern, a technical setup that indicates a shift in control of shares from sellers back to buyers. When BBBY broke out above its $70 resistance level on Thursday, shares triggered a buy signal. This stock has been consolidating sideways for the past two sessions, bleeding off some momentum after Thursday's big jump. That's giving traders a longer chance to build a position in this name.
There's a possibility that BBBY could throw back to test newfound support at $70 before moving up. For that reason, it makes sense to wait for shares to make a new high-water mark in today's session. When that happens, I'd recommend putting in a protective stop at the 50-day moving average.
We're seeing the exact same pattern in shares of Amazon.com (AMZN), it's just not as far along yet. Like Bed Bath & Beyond, Amazon is forming a rounding bottom at the top of its 2013 price range. While that's not the "textbook" context for a rounding bottom (they usually come into play after a decline), it's frankly irrelevant; the trading implications are exactly the same.
Resistance at $285 is the breakout level for Amazon's pattern -- a move above it gives traders a buy signal. It's worth noting that the setup in AMZN is much longer-term than the one in BBBY. Because of that, the upside target is longer-term too. And since AMZN hasn't actually broken out yet, there's more of a chance to get in early on this trade.
The 50-day moving average looks like a solid place to put a stop in AMZN after the breakout.
Against all odds, Groupon (GRPN) has been showing some signs of strength in 2013. Shares have been rallying this year, up 58% since the start of the year. More important, Groupon's huge rally has actually been very orderly. That's a phenomenon that makes GRPN tradable right now.
Since December, Groupon's price action has been bounded by a trendline resistance level to the upside and by trendline support to the downside. Those levels are converging right now, forming a pattern called a rising wedge. Normally, wedges aren't particularly predictive -- the trade signal comes on a breakout outside of the wedge, but the setup doesn't provide much early warning which way the breakout will come from.
That's not the case with Groupon. Shares have been hugging trendline resistance since December have exhibited internal support levels within the wedge itself. That means that buyers clearly have the upper hand right now. With shares sitting right at resistance, a breakout could be on the way for GRPN. Watch this one closely -- the tightening trendlines are likely to spark a volatility squeeze in shares.
TripAdviser (TRIP) is offering up a more cut-and-dry setup this week. Shares of the travel Web site are forming a textbook ascending triangle right now, a pattern that points to more upside for TRIP in the near-term. Here's how to trade it.
The ascending triangle is a price pattern that's formed by a horizontal resistance level to the upside and uptrending support below shares. Essentially, as TRIP bounces in between those two technical levels, it's getting squeezed closer and closer to a breakout above that resistance level at $64.50. When the breakout happens, we've got a buy signal.
Momentum, measured by 14-day RSI, points to near-term strength in TRIP: it's been in an uptrend of its own since late March. Since momentum is a leading indicator of price, that's bullish -- but it's critical to wait for the breakout to happen before putting money on this trade.
Procter & Gamble
Last up is consumer staple behemoth Procter & Gamble (PG), a stock that's been seriously ebbing and flowing over the last month and a half. Procter's price action may look erratic of late, but shares have actually been very technically obedient since the start of April. Now, a rectangle pattern is giving investors a high probability trade.
Procter & Gamble was looking ostensibly bearish at the end of last month. Shares had formed the early stages of a double top pattern with horizontal resistance at $82, but PG's ability to catch a bid at $76.50 support meant that the setup was actually a rectangle. Either way, the trade didn't change. Wait for the breakout outside of the $76.60 to $82 range, then trade in the direction of that move.
Why doesn't the pattern name matter for P&G?
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. Triangles, rectangles, 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 $82, for example, is a price where there's an excess of supply of shares; in other words, it's a place where sellers have been more eager to take recent gains and sell their shares than buyers have been to buy. That's what makes the breakout above it so significant -- a breakout indicates that buyers are finally strong enough to absorb all of the excess supply above that price level. Don't go long PG until that happens.
As of the most recently reported quarter, Procter & Gamble was one of Warren Buffett's holdings.
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.
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 .