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5 Charts to Trade After Bernanke's Comments - views
BALTIMORE (Stockpickr) -- Yesterday's trading session was quiet -- a little too quiet. Investors spent the whole day lying in wait for FOMC minutes and Fed Chairman Bernanke's comments at an NBER conference, but when they finally came, they couldn't figure out what to do.
The S&P 500 hemmed and hawed after the 2 p.m. minutes release, looking a whole lot more like the EKG of a heart attack patient than a stock chart. But this morning, it looks like market participants have finally settled on a direction to end the week.
"The overall message is accommodation," Bernanke assured his audience yesterday. Heh, message received.
So as stock priced get buoyed today, it makes sense to take a technical look at the big trades setting up insome of Wall Street's biggest names.
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.
A rising tide may lift all ships, but few firms stand to benefit from a prolonged equity rally quite like IntercontinentalExchange (ICE). The $13 billion global futures exchange operator is in the works to buy NYSE Euronext (NYX), the parent company of the storied New York Stock Exchange.
But ignore those fundamentlas for a second. From a technical standpoint, ICE looks well-positioned for a move higher in July.
That's because ICE is currently forming an ascending triangle pattern, a price setup that's formed by a horizontal resistance level above shares at $180 and uptrending support to the downside. Essentially, as ICE bounces in between those two technical price levels, it's getting squeezed closer and closer to a breakout above that $180 price ceiling. When that happens, we've got a buy signal in this stock.
It's important to wait for that breakout to get confirmed before going long ICE. Shares popped above $180 briefly back in mid-June, but that move ended up being a bull trap. Waiting for two consecutive closes above $180 confirms the move; until then, it's not a high-probability trade...
That kind of confirmation, incidentally, is exactly what investors should be looking for today in shares of PC maker Hewlett-Packard (HPQ). HP has posted some blockbuster performance year-to-date, rallying 82% since the calendar flipped over to 2013. That's far and above the otherwise impressive 15.9% climb in the S&P.
But yesterday's breakout in HPQ points to even more upside in the near-term.
$26 has acted as resistance for the last two months, swatting shares back lower on each of the last three attempts to cross that price level. But yesterday was different; shares spent the entire session in breakout range, testing the waters above the resistance line. It's still early to call the breakout in H-P confirmed; at this point, it could be just another bull trap. A white candle that stays above $26 could change that.
Yesterday's price action also put HP at a new 52-week high, a technical phenomenon that's bullish for shares. Making new highs is significant from an investor psychology standpoint because it means that everyone who has bought shares in the last year is sitting on gains. As a result, the "back to even" mentality is less of a concern than it would be for a name with a higher proportion of shareholders sitting on losses.
Even so, I'd recommend waiting for confirmation before becoming a buyer.
Video game maker Electronic Arts (EA) has posted some impressive price action of its own in 2013: Shares of the $7 billion firm have climbed more than 64% this year. But consolidation in the last few months makes the next step a little less clear in EA. Here's how to trade it.
EA's sideways movements for the last few months aren't hugely surprising, after all, shares went parabolic back in early May, moving far fast. The consolidation gives EA's investors a chance to catch a breath and figure out their next moves. From a technical standpoint, the important thing here is the fact that EA's price action has been "boxed in" by a rectangle pattern, a price setup that's formed by horizontal resistance above shares and horizontal support below.
EA has been flirting with resistance at $23.75 for the last four or five trading sessions, bleeding off momentum as it bled sellers off of the high end of this stock's range. I'd call the breakout confirmed if EA can hold $24. If you decide to be a buyer here, keep a tight stop.
We're seeing the exact same pattern in shares of Netflix (NFLX) right now.
Like EA, Netflix has spent the last few months stuck in a rectangle pattern, bouncing in between resistance at $250 and support at $205. The trading signal comes on NFLX's move outside of its rectangle: A move above $250 is a buy signal, and a move below $205 is a signal to go short.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, triangles, rectangles, and the like 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.
Netflix's resistance level at $250 is a place where sellers have recently been more eager to keep selling than buyers have been to build a position in the stock. But a move through $250 indicates that buyers have finally gained enough steam to absorb all of the excess supply there. That's what makes it a buy signal.
Momentum, measured by 14-day RSI, adds some bullish bias to Netflix right now. Momentum broke its downtrend at the start of July, and it's been moving higher ever since.
Last up is search engine giant Google (GOOG), a stock that's showing off some interesting price action of its own this week. Google has spent most of 2013 trending higher, but more recently, it's hit its head on the $920 level -- that's the resistance level to watch from here.
Google is forming a price setup called a rounding bottom. As the name implies, rounding bottoms typically show up at the bottom of a downtrend, not at the top of an uptrend. But remember, names don't matter -- the trading implications do. A lot of similar setups are showing up in the tech sector right now, and Google is as good a proxy as any for the group. A move through $920 means that it's time to buy.
I also featured Google last week in "5 Stock Charts You Need to See."
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