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5 Consumer Stocks Ready to Push Higher This Week - views
BALTIMORE (Stockpickr) -- A confluence of events shoved the S&P 500 down 2.3% by yesterday’s close, as stocks reacted to reprehensible terror attacks at the Boston Marathon just an hour before the market’s close. But if stock prices are a sentiment gauge for American sentiment, then people are feeling more confident about the situation this morning.
Make no mistake, yesterday’s selling -- the biggest down day since November -- didn’t come close to derailing this rally in the S&P.
Throughout it all, consumer stocks have been leading the pack in terms of strength. Consumer-driven names, particularly staples, have been muscling ahead of the broad market in 2013, up more than double vs. the big indices. If this morning’s rebound is any indication, those consumer stocks are retaining that strength into the second quarter of the year.
That’s why we’re taking a technical look at five consumer-driven names ready to break out 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.
Appliance-maker Whirlpool (WHR) has managed to stay arm’s-length ahead of the S&P’s already impressive climb this year, up more than 11% since the first trading session in January. That’s even after yesterday’s 5% decline in the $9 billion dishwasher and dryer giant. Now shares look well-positioned to move even higher in April.
Whirlpool is currently forming an ascending triangle, a technical setup that’s formed by horizontal resistance above shares (in this case at $120) and uptrending support below shares. Essentially, as WHR bounces in between those two technical levels, it’s getting squeezed closer and closer to a breakout above that $120 mark. When that breakout happens, traders have another buy signal in this stock.
It’s critical to wait for resistance to get taken out before jumping into a trade in WHR -- $120 has acted as a ceiling on the last three attempts that buyers have made to move higher. When the breakout happens, I’d recommend keeping a protective stop at the 50-day moving average.
Sirius XM Radio
Sirius XM Radio (SIRI) is another name that’s been consolidating after a big leg higher. The satellite radio carrier has been bouncing within a rectangle pattern for the last few months, hitting its head on resistance at $3.25 before finding a floor at $3. Now, shares are testing support again.
Consolidations such as the one in SIRI are common after big moves -- they give investors a chance to catch their breath and figure out their next moves. And because rectangles are easily defined on the chart, they’re very tradable setups. A breakout above $3.25 resistance is a buy signal, while a break below $3 support signals a sell in SIRI.
Momentum adds some extra confidence to this trade. 14-day RSI had been trending lower for the better part of 2013, only to break to the upside in April. Because momentum is a leading indicator of price, the implication is a breakout in SIRI’s price action as well. Wait for price to signal a buy before jumping in.
We’re seeing the exact same setup right now in shares of Puerto Rican banking stock Popular (BPOP). Like SIRI, Popular made a significant run coming into early 2013, only to consolidate sideways more recently. For BPOP, resistance comes in at $29, while this stock has support down at $27. Again, the high probability trade is a bet in the direction of this stock’s breakout from the rectangle.
Whenever you’re looking at any technical price pattern, it’s critical to think in terms of buyers and sellers. Triangles, rectangles and other 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 $29, 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 (and the opposite is true of the breakdown below support at $27).
You don’t have to be an expert technical analyst to figure out what’s going on in shares of Visa (V) -- a quick look at the chart will do.
Visa is currently forming an uptrending channel, a trading range that’s bounded by a trendline resistance and trendline support level. Those support and resistance levels give us a high probability range for V to trade within. And as you might expect, the ideal time to be a buyer is on a bounce off of support.
When you’re looking to buy a stock within a trend channel, buying after a bounce off of support 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). Visa is testing trend line support this morning, but a move higher looks likely from here -- there’s considerable demand along that trend line. I’d look to build a position if strength stays in the market by this afternoon.
Fortune Brands Home & Security
Last up is Fortune Brands Home & Security (FBHS), another channel trade that’s testing trend line support right now. FBHS hasn’t established its channel for as long as Visa has, but ultimately that could prove to be a good thing; after all, there’s a whole lot less demand that’s had a chance to be absorbed to date.
Yesterday, shares stopped right at support, a strong sign that buyers were actively jumping in towards the end of the session. Today, the entry strategy is exactly the same as the one in Visa -- I’d recommend building a position in this stock if it can push through its 50-day moving average during the session.
Then, keep a protective stop just on the other side of that support line.
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.