The S&P 500 has already retraced half of its correction from the last couple of months, a positive sign now that the big index sits within eyeshot of its own high water mark from earlier this fall. Between the fundamental factors and the technicals we're seeing right now, there's reason to feel good about being an investor again.
That's why we're taking a technical look at five big names that are tradable this week.
If you're new to technical analysis, here's the executive summary.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, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at the charts of five high-volume stocks to trade for gains.
Trading in Apple has been a train wreck this week. Yesterday, shares of the $507 billion tech behemoth fell more than 6.4 percent — its biggest single-day loss in four years — as a handful of fears come to a head for sellers. So, the real question now is whether the selling is over. At this point, that looks like a good bet.
Apple's selloff yesterday took shares to within a few points of strong support at $520, a price that's acted like a floor for shares of the technology firm the last couple of times they tested it. In real terms, $520 is a price level where buyers start to think that Apple looks cheap again — that's an important safety net of demand for people who own Apple right now.
Apple has a sloping resistance level up around $600 right now, giving traders a potential price barrier to keep a close eye on. That said, I think that buyers have a good opportunity to jump into Apple here with limited risk — just wait for a bounce off of that $520 support level before pulling the trigger. Apple has been volatile lately — traders would be wise to keep a tight stop on this name...
Bank of America
Yesterday couldn't have been more different for Bank of America — shares of the $112 billion banking stock rallied 5.66 percent in yesterday's session, adding onto the enormous gains that this stock has churned out since the start of the year. Bank of America has more than doubled since the first trading day in January. Now, shares could be headed for higher ground still...
We last looked at BofA a month ago, when the ascending triangle pattern in shares was just setting up. At that point, I said that a move above $10 was where you'd want to be a buyer — well, yesterday's price action certainly showed why.
At this point, late-to-the-game traders still have a shot at jumping onboard BofA, but I'd recommend waiting a little longer before trying to be a buyer. After such a large move, it's not uncommon for a stock to do a "throwback," falling back down to newfound support (at $10 in BAC's case) before continuing higher. I'd be looking for that to happen before buying this stock; then, I'd put a protective stop just under the 50-day moving average.
We're seeing almost the same setup in shares of mid-cap oil and gas company Cimarex Energy right now. Like BofA, Cimarex is forming an ascending triangle, a setup that's formed by horizontal resistance to the upside and uptrending support below shares. Basically, as shares of XEC bounce in between those two price levels, they're getting squeezed closer to a breakout above $63 resistance. When that happens, we've got a buy signal in this stock.
It's important to look at what's going on technically in XEC in terms of real buyers and sellers. Sixty-three dollars is a price level where sellers have been more eager to sell and take recent gains than buyers were to buy; a breakout above $63 tells us that buyers have built up enough steam to absorb all of that excess selling pressure that was causing $63 to act like a price ceiling for shares. That's why we want to be buyers after the breakout happens — this isn't a high probability trade until those sellers get pushed back.
The fact that $63 acted as a support level back in April and May is important — it adds some extra significance to the strength of that $63 level to XEC shareholders. Don't be early on this trade.
Intel has been getting shellacked by weakness in the semiconductor industry this year, down more than 18 percent in 2012 as I write. But selling in INTC could be coming to an end — we're seeing yet another ascending triangle pattern in shares of this chip-making giant.
Intel's been stuck in a downtrend for much of the last six months, and more significantly that downtrend has come without any meaningful basing. By that, I mean that the downtrend has come without any mini-reprieves for buyers and sellers to catch their breath and consider whether Intel should really be trading below $20. In the last two weeks, though, Intel has been consolidating sideways, forming an ascending triangle bottom.
Even though an ascending triangle at the bottom of a downtrend isn't the textbook setup for this pattern, the trading implications are the same. Horizontal resistance at $20 is the buy signal for INTC -- if shares pop above that level, we've got a buy signal. This pattern is a lot smaller than the other two we've seen (volatility has been squeezing for INTC lately), but it looks like enough to end the downtrend in INTC if it does trigger...
Last up is Detroit automaker Ford. Like Intel, Ford spent the first part of the year in a downtrend, slipping double digits between February and the early summer. But this stock turned the corner in the late summer, starting on a pretty significant rally. And if it's on our list today, that means that there's a trade to be made here.
It's not just that Ford's been in a rally that's significant. The important part is the fact that Ford's rally has been orderly -- shares have been bouncing higher within a trend channel, a trading range that's bounded by trendline resistance to the upside and trendline support below shares. Even though the channel is only a couple of months old, trendline support is already showing its strength; it's halted a drop in shares the last five times it's been tested.
Momentum has been in an uptrend of its own for Ford, adding some extra confidence to the strength of this stock's rally. Since Ford's channel is trending higher, there are ample buying opportunities — but the ideal time to buy comes on a bounce off of support. It's only a matter of time before Ford comes back down to test its support level, and when it does buyers should look to jump in after this stock proves it can still catch a bid there.
The 50-day moving average has been a good proxy for support over the last couple of months — that's where I'd keep a protective stop.
—By TheStreet.com Contributor Jonas Elmerraji
Additional News: Apple Rebounds From 9-Month Low
Additional Views: Apple May Fall Another 20%: Analyst
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At the time of publication, Jonas Elmerraji had no positions in stocks mentioned.