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5 Stocks to Trade for Gains: Must-See Charts - views
BALTIMORE (Stockpickr) -- "New highs!" continues to be the battle cry in the markets this year, even if U.S. households participating in the rally remains at multi-decade lows. Sure, we may be in the middle of the most hated rally of all time, but that doesn't change the fact that it's a rally.
The millions of retail investors sitting on the sidelines have a tough decision to make: Sit on the sidelines and risk missing out on more upside in stocks this year, or jump in now and risk getting in at the top. It's that psychological barrier that's left lots of investors without exposure to stocks all the way up.
The remedy? Think like a trader. After all, who cares how much the S&P has already rallied in 2013 as long as it keeps rallying until you sell?
With the S&P 500 and the Dow Jones Industrial Average each flirting with new all-time high water marks this week, it still makes sense to pay attention to stocks this summer. That's why we're taking a technical look at the big trades setting up in some of Wall Street's biggest names.
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 this week.
Up first is oil and gas supermajor Chevron (CVX). By and large, Chevron has traded in lock-step with the broad market in 2013, moving right alongside the S&P with a small bit of tracking error.
That may seem surprising -- after all, other hard commodity producers have seen their share prices get shellacked as the market value of their wares dropped. But not Chevron. Crude oil prices have more or less kept pace with the stock market this year, and that makes CVX a good proxy for the broad market.
You don't have to be an expert technical analyst to figure out what's going on in Chevron -- a quick glimpse at its chart will do. Chevron has been in an uptrending channel since all the way back in November, bouncing higher every time it touched support at S1. Now, that uptrend broke back in June, along with the broad market, but CVX put in a new swing low a month ago that gives us a new trendline support level at S2 -- a break below that level is a major sell signal for Chevron.
With CVX in an uptrend right now, it makes sense to be a buyer near support. Traders on the hunt for a more strategic entry can consider scaling in at S1, but more risk-averse investors should wait to see if Chevron can bounce off of S2.
I'd expect Chevron to continue to act as a low-beta proxy for stocks for the rest of 2013.
The exact opposite price setup is taking shape in shares of China Mobile (CHL).
2013 hasn't exactly been a banner year for the biggest mobile phone carrier in the People's Republic. Shares of CHL are down 10% since the calendar flipped over to January, underperforming the S&P by a huge span. And despite the bounce in shares since the end of June, I'd suggest being a seller here.
That's because CHL has been trending lower in a channel every bit as well-defined as the uptrend in Chevron; that channel gives us a high-probability range for China Mobile's shares. Now, with shares hitting their head on trendline resistance, it makes sense to unload your CHL stake here as this stock catches resistance. Traders who go short should plan on an exit as this stock gets near trendline support.
Apple (AAPL) is no stranger to downtrends. Year-to-date, Apple has shed nearly 17% from its share price, an absolutely amount of lost value when the firm's $400 billion market capitalization is accounted for. But the tides could be turning for Apple after the firm's third quarter earnings beat snaps sellers out of their groove.
Since mid-February, Apple has been forming an inverse head and shoulders pattern a bottoming setup that indicates exhaustion among sellers. After the share unloading they've been engaged in this year, sellers have plenty of reasons to be exhausted. The inverse head and shoulders is formed by two swing lows that bottom out at approximately the same level (shoulders), separated by a lower low between them (the head). The buy signal comes on a breakout above the neckline, which is right at $450 for Apple.
There's some extra confirmation in Apple's price momentum this month: 14-day RSI broke its downtrend, making higher lows this past week. Since momentum is a leading indicator of price, that's an auspicious sign.
Still, I wouldn't recommend being a buyer until that neckline gets taken out.
Mid-cap U-Haul parent company Amerco (UHAL) has been looking pretty bullish for the past year. Shares have more or less doubled in the last 12 months, even in spite of the fact that they've been consolidating sideways since mid-March. And this summer, UHAL's price action points to even higher ground.
That's because UHAL is currently forming an ascending triangle pattern, a price setup that's formed by a horizontal resistance level above shares at $180 and uptrending support to the downside. Essentially, as UHAL bounces in between those two technical price levels, it's getting squeezed closer and closer to a breakout above resistance. When that happens, we've got a buy signal in shares.
UHAL generally sees pretty light trading volume. For that reason, it makes sense to be particularly careful entering a trade in UHAL -- a breakout could send less-disciplined traders chasing this stock above $180. The ascending triangle looks textbook right now; if you decide to buy the breakout, keep a tight protective stop in place.
Eastman has spent most of 2013 forming a rounding bottom pattern, consolidating under $74 resistance since February before finally breaking out at the start of June. That breakout has been pretty tepid so far, but as shares throw back to test newfound support at $74, buyers are getting a second chance to buy at a lower level. A throwback happens when a stock moves back down to test newfound support at its former breakout level in this case at $74. And while throwbacks look ominous, they're actually constructive for stock prices because they re-verify the stock's ability to catch a bid at support.
If you decide to buy the bounce, I'd suggest keeping a protective stop at 50-day moving average.
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