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BALTIMORE (Stockpickr) -- It’s Thursday, which means the weekly slew of economic data is hitting Wall Street, starting with jobs and producer price index data at 8:30 a.m., and carrying through the end of the trading day with a number of Fed officials hitting the podium throughout the country.
And there’s even more information for traders to absorb now that we’re in the early stages of earnings season.
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All that activity has thus far done little to move the market in a meaningful way. While this week started off with sharp selling in commodities, all asset classes have since bounced a bit while volatility in stocks remains subdued. Right now, the S&P 500 Volatility Index -- better known as the VIX -- sits at half of its mid-March highs.
That doesn’t mean that there isn’t a lot going on in some of the market’s most heavily traded issues right now. Even if the broad market is sorting itself out sideways, it’s worth taking a technical look at big names that could move in the coming week.
Technical charts are used every day by proprietary trading floors, the Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
Every week, we take an in-depth look at large-cap stocks that are telling important technical stories. Here’s a glimpse at this week’s stocks.
We’ll start off with oil. Oil’s been active lately to say the least, first in full bull mode, and this week giving back nearly 7% following an announcement from Goldman Sachs that the firm no longer believes that the risk-reward tradeoff for crude favors the upside. Regardless of the call, crude futures and oil stocks alike are showing signs that the run higher isn’t over.
Take the industry’s standard-bearer, Exxon Mobil (XOM), for instance. The $412 billion oil and gas supermajor does a fairly good job of reflecting price changes in the energy markets -- no surprise given the fact that those prices have a direct impact on how much revenue Exxon is able to generate. While the stock gapped down at the beginning of the week, shares are still sitting above trend line support. That’s a good sign for this stock’s shareholders.
Because Exxon’s support level has been previously tested with share price bounces no fewer than three times, the implication would be that there’s enough demand for shares below $82 right now to hold prices above that level. Of course, trend lines invariably fail at some point. To combat that, it’s essential to wait for the bounce higher before going long Exxon. Trying to catch the stock as it finds support adds significant risk to the trade.
Royal Dutch Shell
Of course, investors seeking exposure to the oil business aren’t locked into Exxon. Many other oil stocks are showing similar outlooks right now. One of those is Royal Dutch Shell (RDS.B), another of TheStreet Ratings’ top-rated oil and gas stocks.
From the Shell chart above, it’s clear that the slide in oil futures had an even less threatening impact on this stock, which is trading near the midpoint of its channel, and still well above any semblance of support. With Shell, we’ll need to see a bounce off of lower prices before it really makes sense to buy shares.
Technical traders had an early clue in the negative divergence that was taking place in the stock’s RSI. The divergence first started showing signs of weakness back at the beginning of March, which isn’t to say that the technicals were some kind of crystal ball for this week’s crash -- only that RSI indicated that buyers of PBR were losing momentum.
Another early cue to PBR’s trend line break was the stock’s inability to reach new highs last week as crude did the same. With shares likely to continue their slide until oil prices actually spark a move higher, this stock should make a good short candidate as it approaches support at the 200-day moving average. Consider a protective stop at $40 to avoid this trade moving against you.
Bank of America
Bank of America (BAC) has had a somewhat less-than-attractive year in 2011: Year-to-date, the banking giant is already trailing the S&P 500 by more than 5%. But even though fundamentals continue to be underwhelming for Bank of America, this stock does have upside potential on the technical side.
That’s because shares are forming a bullish falling wedge right now, a setup that’s characterized by converging, downward trend lines. Statistically, the falling wedge is a very predictive formation -- studies have been able to predict eventual upside moves with this pattern with more than 90% accuracy. There are some caveats, of course.
The first is the flatness of the lower trend line. Ideally, we want to see another lower bottom before this chart can break higher. Another caveat is the importance of waiting for the breakout above the upper trend line (the buy signal) to occur before taking a position in BAC.
Finally today, we have Honda Motor (HMC), the major Japanese automaker that’s been one of the stock worst affected by the recent disaster in Japan. Shares of Honda fell nearly 25% in the wake of the earthquake, but it looks like shares may have finally found a bottom.
Honda hit a pre-existing support level at $33.80 this week and is starting to bounce higher. Now looks like a particularly good time to pick of shares of Honda at significantly lower prices. Keep in mind that because this stock is an ADR and trades both here and in Japan, shares are prone to gaps as the U.S. market opens to reflect overnight trading action in Japan.
If you do go long, consider a protective stop below the horizontal support line in the chart above.
To see this week’s trades in action, check out the High Volume Technicals 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.