Stock Quotes in this Article: BMY, EIX, MRK, NWSA, X

 BALTIMORE (Stockpickr) -- Have you gotten enough of Apple (AAPL) yet?

After the iPhone maker’s blowout earnings after the bell on Tuesday, the world’s largest company has been grabbing the headlines nonstop -- and reigniting a debate on Wall Street over how high shares of the tech giant can soar. Well, guess what: I’m not talking about Apple today.

I bring it up, though, because the Apple story is relevant for the bigger picture. The company makes up 4% of the S&P 500 and a whopping 12% of the NASDAQ Composite -- so a big move in everyone’s favorite iStock guarantees a big day for Mr. Market. And that’s just what he needed.

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The S&P in particular has had a hard time pushing above an important resistance level at 1390 in spite of the fact that the market is looking “cheap” right now. Today’s 1.4% gain in the S&P could be just the jar that market participants needed to make the shift from correction mode back into rally mode. After spending most of April consolidating, the index might just be ready for its next leg up.

 

To take full advantage of that possible shift, we’ll take a technical look at how some of the biggest names on Wall Street are trading right now.

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, we take an in-depth look at large-cap stocks that are telling important technical stories. Here's this week's look at the technicals of five must-see stocks.

Merck

First up is pharma giant Merck (MRK), a stock that’s having a solid run in the past six months. Shares of the $117 billion drugmaker are up close to 17% over that time. A technical pattern in shares right now points to even more upside in shares.

The pattern to watch in Merck is an ascending triangle, a formation that’s identified by horizontal resistance to the upside of shares at $39 and uptrending support below. Essentially, as MRK bounces in between those two price levels, it’s getting squeezed closer and closer to a breakout above resistance; that breakout above $39 is our buy signal.

The ascending triangle in MRK tells us two important things: first, resistance indicates that there’s a glut of supply of shares at the $39 level. In other words, $39 is a price where sellers have historically been more eager to sell and take gains than buyers were to buy. The other important factor in the ascending triangle is uptrending support -- it tells us that, at this point, buyers are in control of shares. The high-probability trade comes when that glut of supply gets absorbed and shares push through that price level.

Even though Merck isn’t a strictly textbook setup, the trading implications of those two levels look strong. When MRK breaks out above $39, I’d suggest putting a protective stop in just below the 50-day moving average.

Merck shows up on a list of 10 Dividend Stocks Held by Highly Rated Fund Managers.

U.S. Steel

Another ascending triangle pattern is shaping up in shares of U.S. Steel (X). Typically, ascending triangles are thought of as bullish continuation patterns -- they come into play after an up move has already occurred, like the setup in Merck. But in the case of U.S. Steel, shares are actually making an ascending triangle bottom.

So is that a cause for concern? Nope.

As a trader, it’s important not to get hamstrung by the “textbook” definition of a setup; instead, the crucial element of the X trade is the glut of supply of shares at $32.50 and the indication of buying pressure from uptrending support. Those two technical levels are ultimately what cause the price action we’re looking for in shares.

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U.S. Steel does give us some extra hints, though. A big one is momentum, measured in this case by 14-day RSI. Momentum is a leading indicator of price -- so the short-term uptrend in RSI confirms the bullish bent in X.

Even so, wait for that $32.50 breakout before becoming a buyer.

Bristol-Myers Squibb

As long as we’re on the subject of non-textbook technical patterns, let’s take a look at another pharmaceutical giant, Bristol-Myers Squibb (BMY). BMY is another name that’s been rallying hard in the last few months, buoyed by strong fundamental changes like earnings and acquisitions. But in the near-term, traders should be focusing on the technicals for this stock.

BMY is currently forming a cup-and-handle pattern, a setup that’s a tad bit more obscure than an ascending triangle, but largely works for the same reasons -- in both, you’re looking for that breakout above resistance. For BMY, the level to watch is $34.75.

I mentioned that BMY’s setup isn’t textbook. That’s because shares didn’t make it back up to resistance before they started forming the handle. The fact that shares tested $34.75 resistance last week and failed makes up for the -- it means that there’s still significant supply above that price level, and it makes a breakout all the more valid.

Bristol-Myers shows up on a recent list of the 10 Longest-Held Stocks of Top-Rated Mutual Funds.

News Corp.

Meanwhile, News Corp. (NWSA) is shaping up into a very different type of trade right now. The media conglomerate has been locked in a well-defined uptrend since back in October. Now that trend channel is creating a trading opportunity for late-to-the-game buyers.

Instead of a breakout, we’re looking for a bounce in shares of News Corp. this week. With shares testing trend line support right now, we’ve got what amounts to a low-risk opportunity to buy shares: If we’re right, we’ll get to ride the bounce all the way up the channel, and if we’re wrong, we’ll know quickly and be able to cut losses quickly.

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NWSA announces earnings after the bell on May 9. Unless you’re looking to buy shares for fundamental reasons using technical timing, I’d strongly suggest selling ahead of the earnings call. Otherwise, the stop loss level is right below the trend line support level on the chart.

Edison International

Last up is $14 billion electric utility Edison International (EIX). Like News Corp., Edison is an uptrending channel trade that’s seeing a bounce off of trend line support this week.

As with most real world trend channels, Edison hasn’t obeyed its channel perfectly in the last year. Back in November, shares tested a break of trendline resistance. It’s pretty common for trend channels to get violated; it typically occurs when a large sentiment shift (such as a major trade from a single institution) shoves the supply and demand balance off-kilter, but in both NWSA and EIX, a tweezer top candlestick pattern put prices back in their place in short order.

For a channel trade, it’s crucial to wait for the bounce off of support. Remember trendlines do eventually break, and when that happens, you don’t want to be left holding the bag. A bounce confirms that there’s still demand for shares below that support level. With EIX in bounce mode yesterday, I’d throw the buy switch on the stock’s next white bar day.

To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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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.