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5 Stock Charts You Need to See - views
BALTIMORE (Stockpickr) -- Buckle your seatbelt: Tomorrow marks the final trading session of June.
For investors, that fact has more significance than just which page to flip your calendar to. So far, 2013 has been the year of "new month, new market" -- and now, with the S&P 500 squarely below its 50-day moving average for the first time since this rally started, investors need to be asking what July trading has in store.
Despite the upside that stocks have enjoyed over the past two trading sessions, the uptrend that started in November is clearly broken at this point. That makes more downside look a whole lot more likely for July.
But not everything has the same positioning right now. In fact, some of the biggest names on Wall Street are showing a very different outlook for investors in the month ahead. That's why, today, we're taking a technical look at five critical charts.
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.
Despite the bearish overtones in the market right now, the financial sector has shown leadership over the course of the last month and change. And in July, one of the best-in-breed financials is big bank Wells Fargo (WFC). Here's how to trade it.
Wells has spent the last month and change tracking sideways, forming a bullish price setup called an ascending triangle. The ascending triangle is formed by a horizontal resistance level above shares (at $41.50, in this case) and uptrending support to the downside. Basically, as WFC bounces in between those two technically important price levels, it's getting squeezed closer and closer to a breakout above resistance. When that breakout happens, we've got a buy signal.
That's true regardless of what's going on in the broad market.
Wells Fargo is going to tip traders off early with momentum -- our go-to momentum gauge, 14-day RSI, has been in a shallow downtrend since the triangle started. Expect a breakout higher in RSI right before the breakout in price.
We're seeing the same pattern in Facebook (FB) right now, believe it or not.
I haven't had many nice things to say about Facebook lately. And since the start of 2013, I haven't had much reason to -- this stock is underperforming the S&P by around 21% since the calendar flipped to 2013. That's huge. But now, an ascending triangle bottom in shares is signaling the possibility of some upside.
The last time I talked about Facebook, it was forming a slightly different pattern, but it's evolved into an ascending triangle bottom at this point. Whatever you call it, the trading implications are exactly the same: a breakout above $25 resistance is a buy signal for shares. $25 has been an important level in FB historically -- it was a (temporary) floor for shares back in late March. Now it's a critical level again.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, triangles, channels, and head and shoulders patterns are a good quick way to explain what's going on in this stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.
FB's resistance level at $25 is a place where sellers have recently been more eager to keep selling than buyers have been to build a position in the stock. But a move through $25 indicates that buyers have finally gained enough steam to absorb all of the excess supply there. That's what makes it a buy signal.
Don't put cash in the "social network" until that happens.
Those supply and demand forces are exactly what makes Fannie Mae (FNMA) look doomed right now.
Fannie Mae has been a roller coaster ride over the last six months. The $2 billion OTC-traded name has seen its share price rally more than 362% year-to-date, but shares are down more than 70% just since the end of May. That's some serious volatility.
$1.50 has been a key level for FNMA. It was important resistance back in March (signaling a major breakout when it got taken out), and it's been acting as support ever since. Well, until yesterday, that is. FNMA broke $1.50 in yesterday's session, flooding the market with shares and knocking buyers on the ground. From here, downside in FNMA looks most likely, even if we see a hiccup in today's session.
Only experienced traders should play with Fannie Mae. This thing is a whipsaw machine, and I'd argue that risk management is a lot more critical to trading it successfully than timing is.
Berkshire is forming a rounding top right now. The rounding top looks just like it sounds -- the pattern indicates a transition in control from buyers to sellers, and it triggers a sell on a move through its base. That's the $110 level in Berkshire's case. The 50-day moving average is still acting like a solid proxy for support in Berkshire Hathaway. I'd suggest selling (or shorting) on a move through that level.
If you decide to make an active bet against shares, keep a protective stop on the other side of the 50-day. Berkshire is likely to correlate pretty heavily with the S&P in July, which means that the big index could drag it below support next week.
Advanced Micro Devices
Last up is Advanced Micro Devices (AMD), a name that's been seeing some hefty volatility of its own in 2013. Shares spiked in late April on potential buyout rumors, and they've been stuck at higher levels ever since. Now, after trading sideways for the last two months, shares look ready to make a move.
AMD has been forming a rectangle pattern, a setup formed by a horizontal resistance level above shares and a horizontal support level below shares. The pattern gets its name because it boxes in price action, and it's a common occurrence after a major move like AMD saw in April and May. It gives the stock a chance to bleed off momentum as buyers and sellers figure out their next move.
The buy signal for AMD comes on a move through resistance at $4.20, a level that it's testing this morning. Another resistance level at $4.40 could present another barrier for price action -- but it gives traders a chance to scale into the position as AMD moves through its resistance range.
If you decide to be a buyer, just be sure to keep a tight stop. If AMD falls through $3.80, its chances for upside are broken.
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