Stock Quotes in this Article: AAP, AAPL, HBI, KBR, SPY

BALTIMORE (Stockpickr) -- With new all-time highs in the Dow Jones Industrial Average and the S&P 500 just 1.5% away from hitting new highs of its own, investors finally have some reason to celebrate stocks again. That’s because, strange though it may seem, nothing fuels a stock rally like new highs.

Even though it may have felt like it in the last five years, new highs aren’t some sort of rarity. In fact, over the last five decades, big indexes have spent most of their time within grabbing distance of setting a new high water mark. If anything, new highs are normal for stock investors – and it’s about time Mr. Market started getting back to normal.

>>5 Toxic Stocks That Are Poisoning Your Portfolio

While we’re still a while away from the aggressive Dow 55,000 target I set back in October, the big index has already managed to climb close to 10% since then. Still, I’ll hold my celebrations until the S&P manages to push through to a new all-time high; it could very well happen this week.

As the market moves, so do its constituent stocks. That’s why, today, we’re taking a technical look at the price setups forming in five of the biggest names on Wall Street.

If you're new to technical analysis, here's the executive summary.

>>5 Favorite Stocks From the Pros

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 the charts of five high-volume stocks to trade for gains.

>>5 Stocks Poised for Breakouts

S&P 500 SPDR ETF

With such a big onus on the broad market moving higher, it makes sense to look at the S&P 500 SPDR ETF (SPY), an exchange-traded fund that acts as a very good proxy for the broad market. A quick glimpse at SPY’s chart says just about everything you need to know about the big index right now: Things look stellar.

The S&P has been in a multi-stage rally since the market bottomed in 2009. More important, that rally has been orderly, with rally legs separated by intermediate corrections that allow overbought momentum to bleed off. With SPY smack dab in the middle of its latest rally leg, we’re in a good position to see a new all-time high get set in stocks before the next correction comes around.

For investors looking to broadly “buy stocks,” an ETF such as SPY is a good option. It provides a diversified basket of equities with a single trade. That said, I’d recommend waiting for a pullback to this rally leg’s support level before jumping in. Then, keep a tight stop at the 50-day moving average; if SPY breaks below that level, another corrective leg is likely.

Hanesbrands

I said earlier that “as the market goes, so do its constituent stocks.” The price action in Hanesbrands (HBI) is a perfect example of that. And you don’t have to be an expert technical analyst to figure out what’s going on in this stock.

Hanesbrands has been trading higher within a trend channel, bounded by a resistance range to the upside and trend line support to the downside. That price channel gives traders a high probability range for HBI’s trading to remain within, a big advantage when trying to figure out what to do with this stock. The most important level to watch in HBI is trendline support; it’s a level where HBI has been able to catch a bid and reverse on its last seven drops, and it’s likely to remain an important downside barrier.

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). The 50-day moving average has been a good proxy for support over the course of the pattern; that’s where I’d recommend putting a protective stop on this trade.

Apple

Apple (AAPL), on the other hand, couldn’t look more different.

This tech sector behemoth has been getting shellacked since shares topped back in September, and now is certainly not the time to be a buyer, even if the broad market looks more bullish than ever. Apple is forming the exact opposite setup from HBI and the broad market. The Cupertino, Calif.-based firm is currently trading lower within a downtrending channel. Short-sellers should look to bet against AAPL on a bounce off of resistance in the near-term.

I’ve said before that I’m a fan of Apple, just not a fan of its stock right now. In spite of the fundamental reasons to like AAPL, you can’t fight the tape on this trade. Apple is clearly still being sold off en masse, and it’s critical to wait for this stock to find meaningful support before jumping in. So far, shares are down more than 37% in the last six months, and they could be trading at an even bigger discount.

That said, as this $400 billion firm’s massive cash position continues to become a bigger chunk of its market capitalization, buyers are going to start coming back out again. It’s just a matter of when.

Advance Auto Parts

Advance Auto Parts (AAP) has seen some interesting price action of its own lately. But the most interesting part of AAP’s chart may be the price action that hasn’t happened yet.

That’s because Advance is currently forming an ascending triangle pattern, a bullish setup that’s formed by a horizontal resistance level above shares (in this case at $81) and uptrending support below shares. Essentially, as AAP bounces in between those two technically important price levels, it’s getting squeezed closer and closer to a breakout above that $81 price ceiling. When the breakout happens, we’ve got a buy signal for this stock.

Momentum adds some extra evidence for upside in AAP. While it’s shallow, 14-day RSI has been in an uptrend since shares spiked following third-quarter 2012 guidance at the end of October. Since momentum is a leading indicator of price, that’s a good sign for traders right now.

Extra evidence aside, it’s critical to wait for the price breakout before becoming a buyer. Don’t be early on this trade.

KBR

We’re seeing the exact same ascending triangle setup in shares of engineering firm KBR (KBR). Like AAP, this stock is seeing a horizontal resistance level above shares at $32, and an uptrend on the lower end of shares’ range. The breakout above $32 is the buy signal in KBR.

With any technical pattern, it’s critical to think in terms of buyers and sellers – not shapes. After all, triangles, head and shoulders patterns, and the like are a good way of describing what’s happening on a chart, but they’re not the reason why it’s tradable. Instead, that all comes down to the supply and demand caused by those buyers and sellers.

The horizontal resistance level at $32 is a place where a glut of sellers has been willing to step in and put a ceiling in the stock. A breakout would mean that increasingly eager buyers have absorbed all of the excess supply of shares sitting at that level -- and without that barrier in place, shares could rally much higher than that.

That’s why it makes sense to buy KBR on a push through $32.

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.

RELATED LINKS:

 

>>5 Rocket Stocks Worth Buying This Week

Follow Stockpickr on Twitter and become a fan on Facebook.

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.