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Four Stocks for 2010: Technical Analysis

L.A. Little's post on four long ideas from a technical perspective appeared Monday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.



This blog post originally appeared on RealMoney on Dec. 22 at 11:02 a.m. EST.

Attempts to tell the future are fraught with miscalculations and error, yet as analysts of the financial markets, we are occasionally obliged to look out as far as we can see and prognosticate as to what the future may be.

In doing so, one is tempted to go with the obvious choices: the safe over the risky, the slow movers over the high betas. If you had to pick a few equities that you could put your money in and ride for the year, what would they be? Which ones are likely to prosper in the coming year? On the flip side, what should you avoid or even short? What equities are likely to suffer in the coming year?

2010: The Year in Review
By Gary Dvorchak
20 Surprises for 2010
By Doug Kass
Taking a Long View Ahead
By Dick Arms

Today and next Tuesday I'll highlight some stocks that I find promising -- on both the long and short side. Given that I believe the coming year (and probably years) will provide us with a market stuck in a large range rather than an outright bull or bear market, covering both sides of the equation will be critical to making money. In fact, trading your equities rather than sitting on them will likely prove crucial to financial success.

I start with a retail name, not because I believe retail is the best place to be for the coming year, but because this name has come to own the fastest-growing segment of retail -- the Internet. Amazon (AMZN) has proved its doubters wrong, even if it has taken a decade to do so. As you can see in the chart below, AMZN has finally made new all-time highs, and on a long-term time frame, it is a confirmed bullish breakout.

AMZN Monthly
Source: ProphetNet

The confirmation of all-time highs on volume is critical to determining that this latest burst higher in price has staying power. Looking to the intermediate-term time frame, we can see that the trend is also confirmed bullish as well.

AMZN Weekly
Source: ProphetNet

Remember that for the purpose of this piece, we're looking at long-term time frames. As a result, entry timing and stop losses are naturally larger than most traders typically allow for most trades. If you have no position in AMZN, the initial purchase could be made in the $125-$130 price range. For those with an established position, the ideal "add to your position" point is around $116 to $120.

When you look at the charts from a long-term perspective, AMZN would be an even better buy on a close of the large gap up on the daily chart (not shown) around $98 to $100. The problem is, you can't count on a pullback that deep -- it's highly unlikely to happen anytime soon. Although you should make provisions for how you would trade this issue were such a pullback to occur, unless volume expanded tremendously into the $100 area, it would be a screaming buy at that price point, not a sell.

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