- 5 Stocks Set to Soar on Bullish Earnings
- 5 Tech Stocks to Trade for Gains This Week
- 3 Big-Volume Biotech Stocks to Trade for Breakouts
- 4 Stocks Breaking Out on Big Volume
- 3 Stocks Spiking on Unusual Volume
5 Huge Stocks Ready to Slingshot Higher - views
BALTIMORE (Stockpickr) -- Think the summer roller coaster for the S&P 500 is over? Think again.
Everyone’s favorite index has been hemming and hawing since it bottomed in early June -- and quietly building an orderly 8% rally in the process. Yesterday, The S&P closed lower. This morning, it’s pointed higher. And it’s all essentially been for “no reason.”
So what does that mean for you as an investor when stocks are moving without a reason?
Well, in reality, there’s always a reason. Lately, there just hasn’t been a single reason for stocks’ up and down. Instead, it’s been the result of earnings impacting a slew of names this month, and external factors like the eurozone having differing effects on individual investors’ risk tolerances. Even though these sorts of markets can be tough to navigate, they’re the perfect example of where technical analysis shines.
And with the rally still in tact for the broad market, the onus is on the buyers this week. That’s why we’re taking a technical look at five massive stocks that look ready to slingshot higher.
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, we take an in-depth look at big names that are telling important technical stories. Here's this week's look at the technicals of five high-volume stocks ready to move higher.
First up is Apple (AAPL), a name that plenty of investors are taking a second look at following last night’s earnings call. Even though third-quarter earnings didn’t please Wall Street, this stock isn’t out of the game just yet. In fact, investors could be looking at a bargain-priced entry opportunity in shares of Apple right now.
Here’s how to trade it:
In spite of the earnings miss (and the gap down shares saw yesterday), the first thing to notice about Apple is the fact that it’s still in an uptrend right now. The dominant trend line that’s been in force since February hasn’t been broken, and the stock is still making higher swing lows. That’s a good sign for Apple bulls. Even though AAPL has plenty of overhead resistance levels (R1, R2, and ultimate resistance at $640 marked on the chart above), the nearest one at R1 doesn’t look nearly as strong as that support level coming in at $560. Shares should be able to catch a bid at that price.
Relative strength -- not to be confused with the Relative Strength Index, or RSI, which measures momentum -- offers some extra evidence towards upside. It’s still in an uptrend, signaling that even though Apple has been under pressure since April, it’s still outperforming the S&P.
I’d recommend buying a bounce off of trend line support at $560 or on a breakout above R1.
Bank of America
Bank of America (BAC), on the other hand, has had investors a bit more justified in fleeing from shares. From a fundamental standpoint, BofA is a bit like shoving your hand in a hole in your yard -- it might have gold in it, but then again, you might get bit by a snake. The company's balance sheet is too jumbled to judge fairly, but it does look like this stock is turning around from a technical standpoint, so investors willing to test the hole should take notice.
Right now, Bank of America is forming a double bottom, a setup that’s formed by two swing lows that take place at approximately the same level: $6.90 for BAC. The double-bottom is a bullish reversal signal that signals the conclusion of a downtrend. But just because selling is stalling doesn’t mean it’s time to buy -- you want to see that buyers are in control first. That happens on a breakout above $8.25, the high that separates the two bottoms.
The fact that $8.20 has acted as resistance before bodes well for us -- it makes the price a likelier place for any upward bounce to stall. And because of that, a push above $8.25 means that the glut of sellers that’s previously stopped shares has been completely taken out by buyers.
BofA has some risks to it. If you decide to buy the $8.25 breakout, I’d recommend keeping a tight stop loss.
Bank of America shows up on a recent list of 8 Post-Downgrade Bank Stock Bargains.
JPMorgan Chase (JPM) is another banking behemoth that’s setting up nicely this week, even in spite of the headlines about the firm’s massive trading loss. Like BofA, JPMorgan made a big low at the start of June, but since then, it’s been looking strong. From that bottom, shares made an effective reversal pattern (which I won’t get into here), and have been consolidating sideways in the month since.
So how do you trade JPM?
Essentially, the consolidation channel -- also called a rectangle -- is a setup that’s bounded by horizontal resistance to the upside, and horizontal support to the downside. Consolidations are common after big moves because they give investors a chance to weigh price action for a while before the battle between buyers and sellers resumes. They indicate that there’s indecision among market participants, and that’s certainly understandable with JPM right now.
The buy signal comes when JPM pushes above resistance at $37.
Momentum, measured by 14-day RSI, adds some extra evidence towards continuation in JPM. The indicator (at the top of the chart above) has been in an uptrend since June. Since momentum is a leading indicator of price, that’s a good sign for shares.
Bank of America shows up on a recent list of 5 Banks Cutting Their Way to Bigger Profit.
Another stock that’s consolidating right now is Nokia (NOK). The beleaguered cell phone maker may not be so big from a market capitalization standpoint any more following a 61.8% decline in shares since the start of the year, but it’s big in the sense that it’s a high-volume name with plenty of eyes on it. Yes, Nokia investors have gotten shellacked, but there’s an upside trade in this setup right now.
Like JPM, Nokia is consolidating. In this case, the resistance level to watch is at $2, and support is just below $1.70. Looking at NOK’s chart, it’s clear to see that sellers have been in control of this stock’s price action for a while now, with supply of shares significantly exceeding demand -- but shares are catching a bid here finally. A breakout above $2 would mean that buying pressure was strong enough to overcome the sellers who are still trying to unload a stock they’re basically guaranteed to be down on.
Momentum is looking positive here too. RSI broke its downtrend over a week ago, a move that adds some support to an upside argument. Still, it’s critical not to buy Nokia on anything other than a breakout above $2. I wouldn’t recommend buying this stock for anything other than a short-term trade right now, but speculation of a takeover could be enough to help make this a profitable trade.
Nokia shows up on recent lists of 5 Stocks Under $10 That Probably Won't Double in 2012 and 5 Stocks to Buy if They Crash on Earnings.
Last up is Amarin (AMRN), a biopharmaceutical stock that’s in nearly opposite circumstances from Nokia right now. Rather than dying a slow death, Amarin has been rallying with force in 2012, rocketing more than 94% since the first trading day of the year. We first looked at AMRN a month ago, focusing in on the ascending triangle setup that was forming in shares.
Now, with this stock up another 20% from our $13 buy signal, what should owners do with this stock?
Right now, AMRN is forming a mini ascending triangle pattern, the exact same setup that spring-boarded shares 20% in the last month. While the upside implications of the smaller triangle are proportionally smaller, a breakout above resistance at $15.50 points to even more upside in shares. RSI has turned lower in the last few weeks -- that’s a bit of a red flag -- I’d recommend keeping a stop just under the mini setup’s uptrending support level to lock in gains.
Amarin was also featured recently in "5 Stocks Poised for Breakouts."
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, 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.