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Must-See Charts: Amgen, Oracle - 6928 views
By Jonas Elmerraj
Posted on June 3, 2010i
Volatility continues to be on the upswing in June as the VIX, a measure of the implied volatility of the S&P 500 Index, rises in value. But while the manic-depressive market is a nightmare for long-term investors, who are on the search for some semblance of stability right now, it’s become a treasure trove for traders, who’ve been able to capitalize on the wild market swings for short-term profits.
So instead of throwing up our arms in capitulation, let’s take a look at how some of Wall Street’s biggest names are trading technically -- and how we can get in on the action.
Technical analysis uses a stock's price movements to determine where shares are headed in the future. Technical charts are used every day by proprietary trading floors, the Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time. Every Thursday, Stockpickr analyzes the technicals for some of Wall Street's highest-volume stocks and takes a look at how to trade them.
Here's this week's look at how some of the biggest names on Wall Street are trading technically.
If there was ever an ode to volatility, yesterday’s price action for Amgen (AMGN) fits the bill. Traders bid up shares of the biotech giant after it was announced that the company’s new Prolia drug was given FDA approval ahead of schedule, leading to 10.5% gains by the market’s close and giving the company one of the highest trading volumes of the day. The elation was short-lived, however, and the stock gave back nearly all of those gains in after hours trading. But let’s take a closer look at where this stock could be headed over a longer time horizon.
Shares of Amgen have been locked in a downtrending channel since mid-April, one that only accelerated in May as a broad market correction snapped into place. They bottomed just a few days ago, ahead of yesterday’s Prolia announcement. While the subsequent sell-off doesn’t bode particularly well for the stock right now, it’s important to remember that the bid-up happened during regular trading, whereas the selloff took place after hours (referred to by some as amateur hour trading). Wall Street’s real sentiment won’t really be felt again until the market opens today.
For now, we’ll assume that Amgen can keep its current spot in the low $50 range. If that’s the case, shares could have much higher to move given the lack of resistance hanging overhead. In fact, with the next significant resistance level at around $57 currently, the upside could be big indeed for the short term. Still, with the wacky volatility in place right now, wait for a sustained position above $52 before going long.
Things are looking somewhat less bullish for Oracle (ORCL), the enterprise software powerhouse founded by Larry Ellison back in 1977. Oracle has been underperforming the broad market this year as concerns over the potential of a double dip recession on businesses weighed down investors’ prospects for this stock. And despite more optimistic earnings numbers forecasted for the company’s fourth-quarter release, things don’t look good for short-term holders of this stock.
That’s because Oracle is currently facing three resistance levels directly overhead: an organic resistance level at $23, the 200-day moving average and the 50-day moving average. Because the strongest of those -- the 200-day moving average -- is right above the organic resistance level overhead, Oracle has a sort of “double ceiling” right now, a phenomenon that’s not conducive to upside moves.
This stock could potentially bounce off of resistance, then make a move lower -- but bears beware, too. Oracle has a longer-term double bottom at around $21, so the downside potential is less than guaranteed. Instead, wait for the stock to break $21 before betting against it.
The PowerShares QQQ ETF (QQQQ) is a wildly popular exchange-traded fund that tracks the tech-heavy Nasdaq 100 Index. This fund has been faring well in the last couple of years as tech stocks led the way from recession to recovery, and although the index is highly correlated with the S&P 500, it can offer a significantly different outlook for investors interested in this niche. Right now, that outlook looks moderately bullish for a change.
Traders aren’t strangers to QQQQ. As one of the highest-volume equities out there, it’s frequently used as a trading instrument by everyone from day traders to long-term chartists.
We’ve been talking a lot about volatility of late, and this fund’s chart provides one of the most succinct examples out there. Take a look at the average tick (the candlestick that represents an individual trading day in the chart above). From late 2009 to the start of May, the candlesticks were short and tight, but as May started, those candlesticks became longer and got much bigger tails, indicative of the fact that prices were making higher-percentage intraday swings.
So how’s this fund trading right now? Like all other broad-based indexes, the Nasdaq 100 (and thus QQQQ) took a shellacking last month, but since then, it’s started to stabilize and form a base. Unlike Oracle, this ETF has only the 50-day moving average to content with, way up near $48 per share. As a result, this fund could see upside at least until there in the short term.
To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.