- 4 Tech Stocks to Trade (or Not)
- 3 Big Stocks to Trade (or Not)
- 5 Stocks Setting Up to Break Out
- 5 Dividend Stocks That Want to Pay You More
- 5 Stocks Under $10 Set to Soar
5 Huge Stocks Breaking Out This Week - views
It’s not just that stocks are moving higher right now that’s significant. It’s how they’re moving higher that makes them especially tradable right now. Back on Thursday, in "5 Stock Charts Every Investor Needs to See," I talked a lot about how the S&P 500 was making a bounce off of an important support level in the high 1270s. That market bounce, coupled with high correlations in the market right now, is setting the stage for some attractive breakout trades in Wall Street’s biggest names.
To take full advantage, we’ll look at how five of those trades are setting up in this market.
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.
It’s hard to talk about big-name stocks without bringing up Apple (AAPL). The tech giant has been the stock story of the year in 2012, ballooning up to $644 per share before correcting in a very conspicuous way more recently.
Apple also makes up a massive share of popular indices such as the Nasdaq 100, where it makes up a double-digit chunk of the portfolios that track the index. So it shouldn’t come as a huge surprise that it’s one of the biggest drivers of market moves
And right now, an inverse head-and-shoulders bottom is the technical pattern to watch for in Apple. The pattern, which indicates exhaustion among sellers, has been forming since the start of May, formed by a minor swing low at the start of the month as the left shoulder and a deeper low in the middle of the month as the head. While the right shoulder of the pattern is still forming, the most important thing to watch for right now is a breakout above the neckline at $580. That’s the buy signal for Apple.
A near-term upside target at $640 is a big deal -- it puts a high-probability move for Apple in position to test the record resistance level that shares set back in April.
Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in “profits [that] would have been both statistically and economically significant.”
That’s a good reason to keep an eye on the $580 level in Apple.
We’re seeing a similar pattern right now in shares of oil and gas supermajor ConocoPhillips (COP). Despite May’s pullback in crude oil prices, COP is showing signs of a near-term inverse head and shoulders bottom.
Here’s how you should trade it.
As with Apple, the key is to wait for COP’s neckline to get broken by buying pressure. For this stock, that comes on a move above the $53.50 level. Even though the right shoulder still hasn’t been formed in COP, this setup is nearly identical to the bottom that shares made back at the start of February -- all the way down to $53.50 acting as a neckline level. That gives us some extra assurance over how this stock behaves when it’s in breakout mode.
Momentum, measured here by 14-day RSI, is another piece of confirmation on this trade. The downtrend in RSI broke a few sessions ago from oversold, just as with the bottom back in February, which saw RSI swing to around the same level. Despite all of the evidence, don’t buy until price moves above $53.50.
ConocoPhillips is one of Warren Buffett's holdings, as of the most recently reported quarter.
JPMorgan Chase (JPM) is another name that’s been getting attention in the last few weeks, even if it’s been for all the wrong reasons. JPM is still dealing with the fallout from the firm’s high-profile botched hedging trades, which lost an estimated $3 billion for the firm and snatched around $29 billion from the stock’s market valuation.
With some investors looking for buying opportunity in JPM, it makes sense to look at the technicals shaping up in this stock.
Right now, JPM is forming a v-bottom, a reversal pattern that’s a sort of derivative of the inverse head and shoulders patterns forming in AAPL and COP. In JPM’s case, the pattern is a more volatile spike in demand for shares, but the result is the same: it makes sense to be a buyer on a breakout above $34.50. That price level is the first stumbling block that JPM has seen since its bottom last week, and more important, it’s a price level that’s been significant for this stock in the past.
A breakout above $34.50 means that buyers have absorbed all of the excess asks clustered around that level. It’s a good opportunity for buyers to get into JPM with somewhat lower risks than right now. I’d still recommend a tight stop if you plan on buying JPM with all of the headline risk that’s still in there right now.
Another name that’s gotten plenty of negative attention in the last quarter is Cisco Systems (CSCO). Shares of the $88 billion IP networking firm have fallen close to 22% since the first trading day of April, after poor guidance numbers shredded shares with a massive gap lower. But Cisco has been consolidating sideways since the start of this month, and now there’s a potential trade ramping up in CSCO.
The fact that Cisco has been consolidating in a tight range has big implications when this stock does eventually break out from the range. I like to call it an “if/then trade”: If CSCO breaks out above channel resistance at $17, then buy. Otherwise, if CSCO breaks down below support at $16.45, then this stock becomes a short candidate.
When you’re trading breakouts in Cisco, it’s critical not to think in terms of value -- you’re not trying to buy when this stock gets “more expensive”; instead, the buy above $17 comes when shares push above a price that’s previously housed a glut of supply of shares. That pocket of supply is why that price has been acting as a sort of “ceiling” for shares of CSCO; it’s a price where sellers have been more eager to sell and take gains than buyers were to buy.
Even though the setup is less indicative of direction at this point, there’s still a high probability move to be made by betting in the direction of the breakout.
As of the most recently reported quarter, Cisco was one of Third Point's holdings.
Dunkin’ Brands Group
Last up is Dunking Brands Group (DNKN), a recent IPO that’s actually managed to move higher since the start of the year -- the firm has rallied around 30% since the first trading day in January. Currently, Dunkin’ is looking like a bullish trade thanks to an ascending triangle pattern that’s been forming in shares since back in early March.
Basically, the ascending triangle is a pattern that’s formed by horizontal resistance to the upside (at $33.60 for DNKN) and uptrending support below shares. As shares bounce in between those two technically significant price levels, they’re getting squeezed closer and closer to a breakout above resistance.
Investors should take that breakout above $33.60 as a buy signal for this stock.
To see this week’s trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Roberto Pedone in Winderemere, Fla.
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.