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Must-See Charts: SPY, MSFT, BAC - 40828 views
Yesterday’s gains were impressive: 1.64% for the S&P 500, 2.05% for the Nasdaq Composite and 2.27% for the Dow. All told, Wednesday’s bullish push was a major signal for the market: Don’t discount the bulls right now.
That rally came following a fairly tepid market response to the normally upbeat Thanksgiving holiday and strong Black Friday numbers. As of yesterday’s market open, most indexes had been sitting right on support, a sort of price floor that market prices have difficulty falling below. Now, however, stock prices have cracked near-term resistance levels to the upside and are pointing higher for the first time in several trading days.
What does that mean for some of the most heavily traded stocks on Wall Street? Let’s take a technical look.
>>Also: Tehnical Setups of the Week
In case you’re not familiar, 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.
Here's this week's look at how some of the biggest names on Wall Street are trading technically.
With all of the focus on what’s happening with the broad market right now, it makes sense to start off with an index play. I’m talking about the SPDR S&P 500 ETF (SPY), an exchange-traded fund that mirrors the performance of its popular namesake index. SPY is a popular option for buy-and-hold investors and traders alike.
Long-term buyers like the fund’s exposure to the S&P’s basket of the 500 largest publicly traded companies in the world without many of the drawbacks of mutual funds. Traders flock to SPY’s liquidity. Right now, both could be seeing a reason to go long this fund.
Following a two-month rally in the market, SPY has pulled back noticeably since the beginning of November, consolidating between $118 and $120. Shares made their move above that $120 resistance level with yesterday’s large upward move. Now they’re on track to take out another overhead resistance level.
One of the potential consequences of yesterday’s price action is a pullback or sideways consolidation period. We’ll want to see shares stay above newfound support at $120 to justify going long right now.
>>Also: Top 10 S&P Buybacks of 2010
Microsoft (MSFT) was a major beneficiary of the upward price movement in the NASDAQ yesterday: Shares of the $223 billion software giant rallied 3.1% by Wednesday’s close. That jump may have set the stage for higher prices to end 2010…
Shares of Microsoft had been in a downtrend for the last month as shares slumped down to a previous support level at $35. With yesterday’s 3.1% bounce, however, shares cleared the tight overhead resistance level at the 50-day moving average, clearing the way for a move up to the 200-day.
While that’s a small potential upside gain, it’s one that traders will likely be eyeing for a high probability trade. More significantly, though, a break above the 200-day clears the path for another leg higher. We’ll have to see where shares wind up next week before betting on any kind of direction on shares of Microsoft.
This year has proved brutal for $114 billion banking stock Bank of America (BAC). All told, shares of this banking behemoth have fallen 25% since the first trading days of 2010, but that downtrend could soon end at the hands of a double bottom in shares right now at $11.
For the past several months, shares have met resistance to the upside at the 50-day moving average, a line that charts the stock’s average price over the trailing 50 days. But now that shares of BAC have stalled their latest descent at $11, the same spot they reversed in late October, this stock looks set up to make another attempt at the 50-day.
To be sure, cracking resistance at the 50-day will prove challenging for this stock. Even if it does make it above that thin blue line, past performance tells us that we’ll want to see shares manage two consecutive opens above that level before it becomes a buy.
That said, there’s nearly 10% short-term upside in shares right now as they approach that level. I’d suggest placing a stop just below $11 support if you’re planning on going long right now.
To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.
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.