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5 Must-See Charts to Trade in April - views
BALTIMORE (Stockpickr) -- “Oops.”
At least, that’s what I imagine someone must have said at the Fed when officials realized that they’d accidentally released FOMC minutes to banks and a handful of other groups a day early. Clearly Mr. Market didn’t care -- yesterday’s 1.22% rally in the S&P 500 (and colossal 1.83% rally in the Nasdaq) is proof enough of that.
News that the Fed was pondering an end to stimulus helped spur buying in stocks, but market watchers should be careful not to ascribe too much emphasis to how much the announcement impacted the market. After all, stocks have been consolidating for the last month and change after staging an extremely orderly rally -- so in my view, yesterday’s breakout was more a function of some positive news hitting the market than what positive news hit the market.
The new all-time highs in two-out-of-three big indices yesterday matter. That’s because they’re spurring on attractive trading setups in some of the biggest names on Wall Street; today, we’ll take a technical look at five of them.
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 the charts of five high-volume stocks to trade for gains.
SPDR S&P 500 ETF
The most important chart to look at right now is one of the broad market -- and the SPDR S&P 500 ETF (SPY) is the best way to do that. It doesn’t take an expert technical analyst to see what’s going on in SPY right now; one glimpse at this chart should be enough to figure out that the big index is in a super-orderly uptrend right now, and it has been since all the way back in November.
SPY’s price action yesterday gave us another big breakout for the index, a move through all-time highs that has a way of creating a positive feedback loop for investors. Think of it this way: Almost everyone who owns a diversified portfolio of stocks is sitting on gains right now -- and investors who sold their equity positions off early have missed out on a massive multi-year rally. That fact should help move some money from the sidelines (where retail investors are sitting en masse) and back into the equity market in 2013.
If you’re looking to build a position, the most tactical time to be a buyer is on a bounce off of support -- and that’s exactly where SPY is sitting right now. The uptrend in relative strength is another telling piece of the puzzle in the broad market. While SPY is supposed to track the S&P 500 index very closely (in a perfect world, that relative strength line below the price chart should be flat), the uptrend suggests that investors are trying to go overweight into equities as a group even while some of the biggest names on the market continue to perform poorly. SPY, after all, is one of the easiest ways to go “long the market,” so when it sees positive relative strength versus the S&P, it’s a constructive signal for stock prices.
Investors who aren’t building an equity position right now may wish that they had been.
I mentioned that some of the biggest names on the market are performing poorly right now -- Apple (AAPL) is the case in point. This $410 billion tech behemoth has been writhing for the last few months, dropping like a rock at the exact same time that the S&P was rallying hard. But I think that Apple’s pain could be coming to an end soon.
That’s because Apple broke its long-term downtrend resistance line late last month -- and even though it’s continued to move lower in the last couple of weeks, it hasn’t re-violated that trend line. In fact, it’s staged a pretty textbook “pullback” to newfound support very recently. With slightly higher lows coming into play in this stock right now, it’s a pretty pivotal time to be an Apple buyer. While there’s still considerable risk in buying here, the risk is easily defined at least. I’d recommend putting in a a protective stop just below $420 support.
Momentum, measured by the 14-day RSI line, adds some extra confidence to the trade. The long-term momentum downtrend for Apple broke just ahead of the downtrend price break; now a more noticeable uptrend in RSI points to a reversal in AAPL.
I’d recommend keeping a very close eye on this name right now.
A more conspicuous bullish setup is taking shape in shares of Australian banking giant Westpac Banking (WBK). Westpac has been no slouch over the last six months and change, rallying more than 26% since late October -- but it’s the price pattern forming in shares now that bodes paying closer attention to.
Westpac spent the last couple of months consolidating sideways in an ascending triangle pattern, a bullish setup that signaled a buy on the move above $164. The ascending triangle is formed by a horizontal resistance level above shares (at that $164 level) and uptrending support below; as shares bounced in between those two technically important price levels, WBC was getting squeezed closer and closer to a breakout. That breakout happened this week.
Now WBC is signaling buy. Shares have confirmed the move through $164 without moving excessively far through it, which makes this an attractive entry point in the stock. While there is an abundance of gaps in WBC right now, they’re suspension gaps caused by this stock’s overnight trading on the Australian Securities Exchange. They’re technically irrelevant.
If you decide to be a buyer here, I’d recommend keeping a stop at the 50-day moving average.
Liberty Ventures Group
The exact same trade is shaping up in shares of Liberty Ventures (LVNTA) -- the big difference is that this stock hasn’t broken out yet. LVNTA is currently bouncing in between an uptrending support level and horizontal resistance at $77.50. The move through that $77.50 resistance level is a buy signal for this stock.
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 $77.50 is a place where a glut of sellers has been willing to step in and put a ceiling in the stock. A breakout means that increasingly eager buyers have absorbed all of the excess supply for shares sitting at that level -- and without that barrier in place, shares have room to rally to the upside.
Not all of the big trades worth watching are bullish setups right now. Oil and gas supermajor Exxon Mobil (XOM) is a good example of another huge name that’s been doing its best to drag the broad market lower since November -- and it looks likely to continue underperforming.
That’s because XOM is currently trading in a wide downtrending channel. Granted, the downtrend in Exxon may be shallow, but it’s no less real -- and with shares coming down off of resistance this week, it could have considerably lower to fall, especially if the commodities Exxon owns continue to flounder. For traders looking for a shorting opportunity in this stock, it makes sense to make a bet as shares are moving down off of resistance.
I’d recommend keeping a protective stop just above the top of the channel.
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.