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Technical Setups for the Week - 45147 views
BALTIMORE (Stockpickr) -- An emphatic bounce in stocks yesterday shed some of the concern over Friday’s selloff, which took the S&P 500 all the way from resistance at around 1300 to support at 1275 during the course of the day’s trading action and increased the index’s overall volatility by 25%.
But the renewed flux in the equity markets is translating into a rally for other markets.
Brent crude oil rose to over $100 per barrel yesterday, the first time the stuff has seen triple digits since back in late September 2008. As continued unrest in the Middle East threatens the flow of crude, oil prices could have a shot a breaking through resistance levels that currently sit just overhead. You can bet that commodity investors will be watching closely.
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Meanwhile, in the stock market, earnings season is continuing full bore. We’ll take advantage of the added action by taking a look at a new set of Technical Setups for the Week.
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.
British telecom giant BT Group (BT) has shown investors strong performance in the last year, generating 30% returns on top of a generous 3.81% dividend yield. And now, with earnings slated for later this week, the company could continue that streak. Looking at the technicals, though, there’s a clear way to play the trend.
Since last May, shares of BT have been trading strictly within a tight uptrending channel, ultimately moving from $16 per share to just under $30 earlier this year. With the stock sitting right at double support -- from both the trend channel and the 50-day moving average -- now could pose an ideal entry point for investors who want to go long BT.
That ideal entry point comes with a caveat, of course. BT’s positioning at support may be an ideal entry point, but it’s also the point at which the pattern is most likely to break to the downside. To protect against a failed bounce, I’d recommend waiting until the stock actually bounces higher off of support before buying. Then, place a protective stop just below the channel, around $27.
Penn Virginia GP Holdings
For small-cap energy company Penn Virginia GP Holdings (PVG), the last 12 months have brought a colossal rally, as shares clawed their way more than 60% higher. Like BT, Penn Virginia pays a hefty dividend (currently a 5.95% yield) -- and also like BT, this stock is poised to make a move, albeit for different reasons.
Right now, shares of PVG are forming a picture perfect ascending triangle pattern, a setup that’s characterized by a staunch resistance level (in this case at $27) and higher lows. As shares get squeezed higher by that lower trend line, the potential for a breakout increases. That’s exactly the case with PVG.
With an ascending triangle pattern, it’s crucial to wait for the breakout to happen before going long. Doing so may cost a few points of missed opportunities, but it’ll also greatly increase the probability of a successful trade. Once the breakout occurs, consider a protective stop below the old resistance level of $27.
With oil sitting at new highs, oil field service giant Halliburton (HAL) could be a major beneficiary of increased margins at its clients’ sites. Higher oil prices mean that more projects suddenly become commercially viable, a factor that should greatly impact business for oil field servicers like Halliburton, which have already had strong runs of late.
That said, I wouldn’t suggest buying shares of Halliburton right now. Like BT, the stock is trading in an uptrending channel, but unlike our British telecom play, this stock is far from support right now. In fact, shares had an earnings-induced breakout in late January that took them above $42 resistance, and they have continued to rally ever since. As a result, a retracement to that newfound $42 support level could be a possibility in the near-term.
If a retracement to support does happen, the fundamentals and technicals are both certainly in place for continued upside in HAL. Shorter-term traders should aim to sell on the next test of channel resistance; longer-term investors will want to hold on and ride the trend.
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.