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5 Must-See Charts to Buy in July - views
BALTIMORE (Stockpickr) -- Markets finally corrected this week. Hallelujah!
If not for the past three days' sideways slug, we'd be nearing the nine-day win streak record set back in 2004. That's not a record that investors should be shooting for. To be clear, as far as I'm concerned, achieving nine straight up days is pretty meaningless. It's irrelevant how many sessions a big move is cut into; the amplitude of the move is way more important.
But big win streaks are a distraction for retail investors. And they're the kind of moves that beget overcorrections in momentum. That's why this week's breather is a very healthy thing for this rally to continue.
And right now, there's no reason to think that the S&P 500 will do anything other than move higher. The big index keeps making higher lows and highs; it's a textbook uptrend, even if it's been a little trickier to trade lately.
That's why we're taking 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.
Up first is online retail giant Amazon.com (AMZN), a name that I last talked about a month ago. At the time, Amazon was forming a long-term rounding bottom pattern, a setup that triggered on a move above the $285 level. Well, that breakout happened earlier this month. So how do you trade it from here?
Since the breakout, Amazon has moved almost 8% higher without a single down day -- until this week, that is. With a consolidation in AMZN that mirrors the one in the S&P this week, there's still a trade to be made here. That's thanks to the short-term rectangle pattern that's been forming in shares.
A rectangle pattern is formed by a pair of horizontal resistance and support levels in shares of a stock. It gets its name because it essentially "boxes in" shares. For AMZN, resistance comes in at $310 and support is down at $305. That's a super tight range for such a pricey stock, but the implication is that traders will get a much quicker trade signal here.
Buyers should wait for a move above $310 before jumping into AMZN; if shares slip below $305, it's a sell.
We're seeing a similar setup in shares of search giant Google (GOOG). Not a similar setup to Amazon's recent rectangle, mind you, but a similar setup to the long-term rounding bottom that broke out at the start of the month. Google's pattern gives you a chance to get in early.
The rounding bottom is a pattern that indicates a gradual transition in control from sellers to buyers. The pattern's name is a pretty good description of how it looks on a chart -- and in Google's case, the pattern is getting close to a breakout above $920 resistance. When it happens, we've got a buy signal in shares.
Each of the past few days have given GOOG a print above $920, only to close below or immaterially above it by the end of each session. I'd recommend waiting for a more substantial push off of $920 before considering the break confirmed. After that, it makes sense to keep a protective stop at the 50-day moving average.
I also featured Google in last week's "5 Charts to Trade After Bernanke's Comments."
2013 has been a pretty miserable year for Petrobras (PBR). Since the calendar flipped over to January, shares of the $91 billion Brazilian oil and gas company have dropped more than 28%, versus a double-digit rally in the rest of the stock market. But investors could finally be in for a reprieve recent price action in PBR points to a potential reversal this week.
Petrobras is currently forming an inverse head and shoulders pattern, a reversal pattern that's formed by two swing lows that bottom out at approximately the same level (shoulders), separated by a lower low between them (the head). The buy signal comes on a breakout above the neckline, which is right at $14 for PBR; if this setup triggers, it comes with a price target at $16.
There are a lot of inputs affecting PBR's price including prices for the energy commodities that the firm pulls out of the ground and the economic situation in Brazil. Focusing on this stock's price action essentially shortcuts trying to weigh all of those disparate factors. They're already priced in.
Barrick Gold (ABX) is another name that looks "bottomy" right now.
With gold prices unceremoniously falling off a cliff in 2013, $16 billion mining firm Barrick has found itself in the unenviable position of being the proxy for all mining stocks. That's helped to halve the value of the company's shares year-to-date. Like PRB, though, an inverse head and shoulders reversal looks like it's taking shape in Barrick. The $16 level needs to get definitively taken out for this setup to trigger right now, shares are merely flirting with it.
Momentum adds some extra evidence for upside in Barrick. While 14-day RSI had been in a downtrend since the last swing high in ABX, the trendline broke at the start of July. It's still crucial to wait for price to take out the $16 level before putting money on this trade, but momentum provides some extra confidence when it does happen.
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." After the breakout, I'd recommend keeping a stop loss under the right shoulder.
With a market capitalization of just $800 million, small-cap 3D printer maker ExOne (XONE) is the smallest name on today's list by far. But shares have been seeing huge trading volumes in recent sessions thanks to the growth potential (and in some cases, the controversies) surrounding 3D printing. That makes it worth a look today.
You don't need to be an expert technical analyst to figure out what's going on in shares of XONE. This stock has been moving higher in a well-defined uptrending channel since the start of April; that channel gives us a high-probability range for XONE's shares right now. XONE is coming off a bounce off of trendline support, a level that's already been successfully tested five times on the way up so far. It makes sense to jump in here.
If you decide to take the channel trade in XONE, keep a stop at the 50-day moving average it's been a good proxy for support on the way up.
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