Power management company Eaton (ETN) is a stock that's showing traders a fairly similar setup to Citi right now. Like the big bank, Eaton formed an ascending triangle pattern in the fourth quarter of 2011, with resistance at $47 and uptrending support adding buying bias to shares. ETN broke out back at the start of January, triggering a buy signal for traders, only to fall back down to that $47 level in the middle of last month.
So should you stay away from this stock?
Not quite. Eaton's return to newfound support at $47 (a move called a throwback) is actually a good thing in this situation. That's because it confirms the validity of support at that $47 former resistance level. Since we know that there's a glut of demand for shares of ETN below that price, traders have an opportunity to make a low-risk entry in shares of this stock as it bounces back higher this week.Statistically, we know that stocks that throw back ultimately produce smaller gains than those that break out and never look back. Even so, investors shouldn't eschew the low-risk entry that a throwback provides. While upside potential is less, it could still provide material gains with limited downside. Eaton is one of the top-yielding industrial stocks. To see this week's trades in action, check out the High Volume Technicals portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
Twitter and become a fan on Facebook.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV