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5 Popular Twitter Stocks to Trade for Gains - views
BALTIMORE (Stockpickr) -- With Mr. Market kicking trading off flat this week, there has to be a more effective way to spot stocks with the most potential. That’s why we’re turning to Twitter today to find five new names worth trading.
Since its introduction, the microblogging tool has been popular among traders looking to share investment setups with the trading community. Today, with 300 million users, it’s reached a level of popularity that makes it an even more useful resource for investors looking to generate trading ideas in 140 characters or less.
Brevity has been a big part of Twitter’s success -- and a reason for the service’s popularity among traders. After all, it doesn’t take more than a few seconds to blast off a tweet about your latest trade, or thoughts about a significant market move. Third-party services such as StockTwits also aggregate stock market tweets in real time, providing an interesting sentiment gauge or an instant opinion on your latest position.
The Twittersphere heated up this summer when it was announced that a $40 million London-based hedge fund was now applying algorithms to Twitter to generate trading signals. That fund launch comes not too long after researchers at Indiana University, Bloomington found that Twitter could predict up or down days with 87.6% accuracy.
While there are still some issues with relying too heavily on Twitter for trading signals (a model with high predictive ability isn’t necessarily economically viable), the site can be a good starting point for traders looking for stocks getting attention from the investing community. With that in mind, let’s look at technical setups in five stocks and ETFs that are popular on Twitter this week.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Here’s a look at five Twittersphere technical setups that could deliver breakout gains to your portfolio this week.
Power utility holding company Exelon (EXC) is getting plenty of attention to start the week, following news that the firm finally completed its merger with Constellation Energy was completed on Monday. With the last regulatory hurdle behind it, traders bid up share of Exelon in the biggest gaining session of 2012.
But the Exelon-Constellation merger is fundamental news -- so is there still a technical trade to be made there? Absolutely.
Typically, fundamentals drive the technical factors that traders are looking for. That’s the case with Exelon this week; while fundamentals pushed shares higher in yesterday’s session, they pushed the firm’s price through a technical resistance level just below $40. Continuation in Tuesday’s session makes Exelon look like a buyable name for March.
Overhead resistance at $41.50 is a logical upside target for the near-term. While that doesn’t represent a major percentage gain in EXC, it does open the door for a move up to EXC’s next resistance level at $43.50.
While the fundamentals are driving shares this week, they’ve got technical implications that traders shouldn’t be ignoring.
A similar setup is shaping up in PepsiCo (PEP), a firm that’s trending on Twitter this week thanks in part to a management shakeup that was announced yesterday. Like Exelon, Pepsi had been moving lower from its January highs, hitting support at an important level, then consolidating sideways while investors figured out their next move.
Pepsi hit a double bottom at $62 earlier this month, but the pattern was shallow and has already essentially run its course in the last week. Instead, the pattern we’re watching is the rounding bottom (of which PEP’s earlier double bottom is a component) that Pepsi is currently working on forming.
Essentially, a rounding bottom is a setup that indicates a gradual shift in sentiment from sellers to buyers. It becomes tradable when shares move above the top of the pattern, at $65 in Pepsi’s case.
A break above the $65 level puts this stock’s nearest upside target at $67. While, like Exelon, that’s relatively small upside, it clears the way for a move up to the firm’s next “price ceiling”. When the breakout does happen, I’d recommend keeping a protective stop at the 200-day moving average.
Pepsi, one of the top-yielding food and beverage stocks, is one of 10 Companies in the "Ultimate Stock Pickers" Portfolio.
Things are looking less bullish in shares of Ford (F). The Detroit automaker is currently forming a descending triangle -- a pattern that could spell downside for investors in the near-term.
A descending triangle is a pattern that’s formed by a horizontal support level acting as a “price floor” for shares, with downtrending resistance above them. As Ford’s price bounces in between those two technically-relevant prices, it’s getting squeezed closer and closer to a breakdown below that $12 support level. When that happens, traders have a signal to short shares.
Momentum, as measured by 14-day RSI, is providing some extra evidence of the bearish pressures on Ford -- RSI has been locked in a downtrend since the start of the year. Because momentum is a leading indicator of price, that RSI downtrend points to more selling pressure on Ford.
Don’t take a short position in this stock until the $12 level gets broken; until then, it’s not a high-probability trade.
Ford was also featured recently in "5 Cheap Stocks for an Auto Industry Renaissance."
AT&T (T) is getting attention on Twitter this morning, thanks in large part to the performance that this stock has seen over the last couple of months. Since the end of January, shares of this telco giant have rallied more than 7%, almost doubling the advance of the S&P 500 over that same period.
Now investors are left wondering whether there’s any more upside left in shares.
The short answer is “yes.” AT&T is in rally mode right now, following a breakout at the $30.50 level that took place toward the end of February. Shares of AT&T haven’t gone straight up since; instead, they gave traders a throwback for a few days, coming back down to retest newfound support at that $30.50 level before bouncing higher as shares caught a bid.
A throwback is a particularly attractive time to buy because it’s a lower-risk entry point for long investors. With support just a few points below your entry, the risks of a move lower are largely diminished.
Even though it would have been ideal to buy AT&T at the throwback last week, this stock is still looking ostensibly bullish as it pushes to new 52-week highs. Making new 52-week highs is significant from an investor psychology standpoint because it means that everyone who has bought shares in the last year is sitting on gains. As a result, the “back to even” mentality is less of a concern than it would be for a name with a higher proportion of shareholders sitting on losses.
If you decide to buy AT&T as a momentum trade, I’d recommend keeping a protective stop just below that $30.50 support level that’s proven so significant in the past few weeks.
AT&T shows up on a recent list of 10 Dividend Stocks Still Paying Outsized Yields.
Lions Gate Entertainment
Last up this week is independent film and television distributor Lions Gate Entertainment (LGF). If AT&T’s stock performance this year has impressive, the returns at LGF have been downright stellar. Since the first trading day in January, shares have rallied more than 64% -- and there’s potentially more upside to this stock in March.
Right now, LGF is consolidating just under $14 resistance after posting a prodigious rally for most of the year. Consolidation ranges provide investors a chance to plan out their next move and bleed off some overbought momentum from shares. The tight range shares are seeing right now points to the possibility that it’s a “half-mast” pattern, that is, consolidation that’s followed by another move of a similar size to the first. That expectation may be a bit overblown, though.
I have my doubts that Lions Gate can pull off another leg of its rally equal to the one we’ve already seen. That said, a breakout above $14 would send a strong buy signal – and with plenty of Tweeters following this stock’s setup this week, there’d be plenty of participation in the trade to buoy shares. Wait for LGF to move above its consolidation range at $14, and then take a position in this stock.
To see these plays in action, check out the Technical Setups for the Week portfolio at 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.