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Technical Setups for the Week - 4513 views
BALTIMORE (Stockpickr) -- Economic fundamentals are continuing to drive the markets this week as investors digest the latest news from a bevy of agencies, organizations and firms dedicated to providing Wall Street with metrics about the state of the economy.
At the same time, earnings season continues to be in full swing -- and the overall tone is starting to turn positive following outperforming numbers at high-profile firms such as McDonald’s (MCD) and CXS (CXS).
But let the markets enact a sentiment-fuelled tug of war between gloomy economic headwinds and more auspicious earnings data. We’re turning to a new set of technical setups to find our potential plays for this week…
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Remember, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock’s chart patterns and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Here’s a look at this week’s potential trades.
International mining giant Rio Tinto (RIO) has been in the news quite a bit lately following a broad-based commodity rally in metals and constant acquisition attempts to pick up smaller competitors. With high levels of profitability right now, it’s no surprise that investors are interested in shares of Rio Tinto -- but they should be paying attention to its chart right now.
That’s because this diversified miner is forming a bullish ascending triangle setup right now, a pattern that’s characterized by a staunch overhead resistance level and higher lows above trend line support. As those two barriers squeeze shares closer and closer to that stationary resistance level, the potential for a big breakout can become a reality.
In the case of RIO, that resistance level to watch is $72. With shares sitting at support right now, this is still a relatively nascent pattern -- one that’s prone to failure. Instead of entering a high-risk trade on this play, wait for a confirmed breakout above $72, then consider going long.
Meanwhile, shares of semiconductor giant Broadcom (BRCM) are forming a related pattern.
Broadcom could be forming a cup and handle right now, a bullish breakout pattern that has the potential to move shares considerably higher on a sustained break above $47. The cup and handle may get less attention than other patterns, but it’s a significant one to keep an eye on. It can be spotted by looking for a parabolic cup that fails to overcome resistance, followed by a smaller handle pullback. When shares finally re-test resistance for a third time, the chance for a breakout becomes tradable.
In the case of BRCM, our potential handle is sitting right at resistance at the 50-day moving average, an indicator that’s acted as strong support in the past. As with Rio Tinto, we’ll need a sustained breakout before it makes sense to put money in this play. When and if the breakout does happen, place your protective stop just below $47.
Broadcom is one of the top holdings of Louis Navellier at Navellier & Associates, at 3.2% of the portfolio. Dan Burrows of DailyFinance recently highlighted it among six stocks to consider for revenue growth, and it showed up earlier this month on a list of stocks with large insider selling.
The trailing 12 months have been strong performers for shareholders of Nevada-based NV Energy (NVE). Shares have produced gains of more than 24% in capital gains and dividends over that period. But this stock’s latest pullback could mean an ideal buying opportunity for traders looking for more of the same.
NV Energy has been locked in an uptrending channel for the last several months, bounded by strong resistance on the upside and support down below. Since shares are starting to bounce higher off of support once again, traders looking to ride NVE to resistance could be in luck.
If you decide to take on this trade, place a protective stop right around $13.85. That way, if the setup fails, you’ll maintain most of your capital.
NV Energy shows up in the portfolio of Donald Smith at Donald Smith & Co..
To see these plays in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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.