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5 Stock Trades for S&P 1,700 - views
BALTIMORE (Stockpickr) -- You hear that? It's the sound of the stock market tearing its way up to yet another session of new highs.
As I write, the S&P 500 is up more than 16% year-to-date -- and the big index is within grabbing distance of 1,700. The S&P could be sitting on top of that psychologically important round number by the time summer rolls around. Or sooner.
There's still a lot of upside left in this market. Both technically and fundamentally, this market's bias is toward making higher highs, even if it's arguably the most mistrusted rally we've seen in generations. Investor mistrust or not, Fed machinations make this a more structural rally -- it's got staying power.
And that's creating some serious trading opportunities in Wall Street's biggest stocks.
Today, we'll take a technical look at five big stocks worth trading in May.
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 for gains.
Saying 2013 has been rough for Apple (AAPL) is the understatement of the year. The tech behemoth has seen its share price drop by around 20% since the first trading day in January -- that's about $100 billion in value for anyone keeping score. And all along the way, everyone has been wondering when (or whether) the selloff would take a break. Well, it looks like the reprieve could come sooner rather than later.
That's because Apple is forming an inverse head and shoulders pattern, a price setup that indicates exhaustion among sellers. It's formed by two swing lows that bottom out around the same level (the shoulders), separated by a lower low called the head; the buy signal comes on the breakout above the pattern's "neckline" level, which is right at $460 right now. That puts this stock's upside target right around $535.
Don't make the mistake of being early on this trade. There's still a glut of selling pressure above the $460 level, and it's shoved Apple lower each time it's been tested. Wait for the neckline to get taken out before putting your neck on the line on this trade.
Bristol-Myers Squibb (BMY) is a stock that's already breaking out -- and it's breaking out hard. BMY has had some huge momentum in recent months (it's up more than 35% year-to-date), and after a quick correction in late April, this stock has resumed it's upward trajectory. Yesterday's massive leg higher is a good sign of that.
The firm's presentation at a health care conference is being given credit for yesterday's 4.7% move, but ultimately what caused the move isn't nearly as important as what the move actually accomplished. For BMY, yesterday's trading pushed shares above resistance at $42, completing a rounding bottom pattern in shares. That's a buy signal.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, head and shoulders setups, rounding bottoms and other pattern names 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.
BMY's price action indicated a gradual shift in control from sellers to buyers. Since resistance at $42 was a place where sellers had previously been more eager to sell and take gains than new buyers were to keep bidding on shares, the move through $42 was significant yesterday. And not just for its size.
The 50-day moving average has been a good proxy for support since January; it's a good place for a stop loss.
Bank of America
At first glance, Bank of America (BAC) has had some pretty strong stock performance in 2013 -- until you look at the rest of the financial sector, that is. While the big bank is up almost 15% since the start of the year, the Financial Select SPDR ETF (XLF) has rallied more than 20% over that same timeframe. That's huge outperformance -- and BAC looks like it's about to start making up the difference in May.
Bank of America has spent most of this year consolidating sideways in a channel between $11 and $13. But early this week, BAC broke out of the channel to the upside, triggering a buy signal in the big bank. That breakout points to the uptrend from the latter half of 2012 resuming this summer.
Consolidation channels like the one BAC had been in aren't uncommon -- they're a way for a stock to burn off some overbought momentum after a big move higher. Now that BofA has had a chance to move sideways, traders are making a stand above $13. Now looks like a good time to be a buyer. Just keep a tight stop in place if you decide to jump in here.
SPDR Gold Trust
If there's any name that's got as much attention negative as Apple in the last month, it's the SPDR Gold Trust (GLD), an ETF that provides exposure to physical gold. In short, GLD is the most investible proxy for everyone's favorite precious metal.
Gold hasn't exactly been booming this year, and yesterday's greater than 2% decline didn't exactly help matters. But we're approaching a make-or-break level for GLD right now. Here's how to trade it.
At this point, GLD looks like it could either form a double-bottom -- a bullish reversal pattern -- or break down even further this summer. The key is how the metal reacts to support at the $132.50 level. If GLD can't catch a bid at $132.50, then traders have a signal to pile onto their short positions. On the other hand, if GLD bounces on $132.50 and then pushes through $142.50, then gold becomes buyable. I wouldn't go long gold a moment before that.
Yes, the either/or scenario in gold right now means that you've got to be reactionary to trade it. But the best traders are the ones who react to the market, rather than attempt to predict it. Leave predictions to the fortunetellers, and trade the breakout (or breakdown) in GLD.
The price action is a little more one-sided in shares of Amazon.com (AMZN) -- and you don't have to be an expert technical analyst to figure out what's going on in this online retail giant. Amazon has been trading lower since late January, boxed in by a well-defined price channel that's in a downtrend. Its shares have hit their head on the last four attempts to move through resistance -- and there's no reason to think that the fifth time will be a charm.
Price channels provide traders with high-probability ranges for a stock to trade within. Even so, it's important to stay reactionary in shares of AMZN. All trends end eventually, so it's worth waiting to see how shares act at their trendline before putting money on the line. If this stock bounces lower off of resistance today, I'd recommend being a seller (or shorting it).
Amazon looks likely to keep trending lower in May.
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.