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BALTIMORE (Stockpickr) -- The ice is melting in the beer coolers, and the grills covers are going back on -- at least for today. Wall Street still has another day of trading in the way of the weekend.
One consequence of this hacked-up trading week is low volume. After all, the Fourth of July is just as good a time for Wall Street traders to take a vacation as any holiday. So investors can expect that a good chunk of institutional trading volume is spending today in the Hamptons or some other vacation spot, not on the trading floor.
But that doesn't mean that there won't be big trades to be made today, especially as the S&P 500 teeters on the edge of another key level this week. 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.
SPDR S&P 500 ETF
First up is our go-to proxy for the broad market, the SPDR S&P 500 ETF (SPY). SPY essentially trades in lock-step with its benchmark index, a market metric that's been under heavy scrutiny over the last few months as a big correction took shape. Now, though, I think that the outlook for the S&P is a lot more cut and dry.
The S&P had been in a very well-defined uptrend since all the way back in November, but that uptrend broke in June when the big index fell below its 50-day moving average. Since then, SPY has been making lower highs. That's a downtrend in my book.
Despite many attempts over the last few days, SPY has been hitting its head on newfound support at the 50-day moving average. If the 50-day can swat the index lower, then more downside is a pretty obvious conclusion. More importantly, new trendline resistance (marked in red) connecting the highs in SPY needs to get taken out before stocks are in anything but a downtrend. The downtrend in momentumadds some extra evidence of that.
To be clear, I don't think we're in store for a bear market from here, but this corrective period isn't showing signs of abating at this point. Caveat emptor.
Zynga (ZNGA) is showing traders the same outlook right now -- its price action is just a little more developed. Zynga went parabolic at the start of 2013, rallying extremely hard as buyers swarmed shares, but that uptrend broke in February, and shares have been tracking lower ever since. Now, as ZNGA hits its head on trendline resistance, it makes sense to sell the bounce lower.
You don't have to be an expert technical analyst to figure out what's going on in Zynga -- this social gaming stock has hit its head on that same resistance line three times now. The glut of selling pressure at resistance has done a good job of swatting down shares on Zynga's previous tests of that level. And while trendlines do eventually fail, this stock hasn't done anything to suggest that's the case at this point.
If ZNGA bounces lower from here, shorts should look to take this trade all the way down to trendline support.
Everyone's favorite search engine giant looks a bit more bullish right now.
Google (GOOG) has made a stellar run in 2013, rallying more than 25% year-to-date. That's substantial outperformance over the broad market, and recent price action points to Google widening its lead. Shares of GOOG have spent the last couple of months consolidating sideways in a pattern called a symmetrical triangle. The breakout is a buy signal.
A symmetrical triangle is a price pattern that's formed by trendline resistance and support lines that are converging at approximately the same rate. A move outside of the triangle pattern is the signal to place a trade in the direction of the move. Typically (but not always), continuation patterns like triangles lead to breakouts in the direction of a stock's original price action. For Google, that original direction was up.
Since Google's symmetrical triangle is squeezing shares in a tighter and tighter range, it's also pointing toward the possibility of a volatility squeeze for shares of GOOG. That means traders should expect the move out of the pattern to be fast and big. Keep a close eye on this name.
Pharmaceutical firm Actavis (ACT) is showing traders a similar pattern to Google's right now. But instead of converging support and resistance, Actavis' price action is getting "boxed in" by a rectangle pattern with horizontal resistance range above shares up the $130 level and horizontal support at $120. The trading implications are the same though: When ACT moves out of is rectangle pattern, it makes sense to take a position in the direction of the breakout.
The existence of a resistance range, rather than a single price level, does make trading ACT slightly trickier, but not by much. More risk-hungry traders can step into a position on a move through $127, while risk-averse traders should wait until $130 gets creamed on the upside before jumping in.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, triangles, rectangles and the like 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.
ACT's resistance level at $130 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 $130 indicates that buyers have finally gained enough steam to absorb all of the excess supply there. That's what makes it a buy signal.
Last up is medical device maker Boston Scientific (BSX). In short, BSX looks "toppy" right now, thanks to a head and shoulders pattern that's taken shape in shares.
The head and shoulders is a topping pattern that's formed by two swing highs that top out at approximately the same level (shoulders), separated by a higher high between them (the head). The sell signal comes on a breakout above the neckline, which is right at $9 for BSX. Momentum, measured by 14-day RSI, adds some extra downside confidence to this trade; it's been in a downtrend of its own since the pattern started forming.
Lest you think that the head and shoulders is too well-known to be worth trading, the research suggests otherwise. A recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." If you own BSX right now, I'd recommend taking gains if $9 gets taken out.
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