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TheStreet Open House

5 Big Stocks to Trade for Gains

Stocks in this article: SPYCNPNFLXXRXBAC

SPDR S&P 500 ETF

First it makes sense to look at what's going on with the broad market. We'll do that with the SPDR S&P 500 ETF (SPY). It's most investors' favorite way to get exposure to "the market" because it mirrors the price moves in lock step with the S&P 500.

So why exactly should you be betting on stocks right now? A quick look at this chart has the answer.

>>5 Blue-Chip Stocks to Buy to Beat the S&P

As you can see, the broad market has been trending higher since the beginning of June, bouncing higher within a well-defined price channel. That channel is significant -- it gives investors a glimpse at the high-probability moves for Mr. Market; since those trendlines identify gluts of supply and demand in the market, the S&P is a lot more likely to remain in the channel than it is to exit.

And so even though stocks have corrected for the last month, SPY bounced perfectly off of trend line support this week. That tells us that the channel is still in force. A few days before the bounce, momentum (measured by 14-day RSI) broke its downtrend and moved back into its bull range. That bodes well for being a stock investor in the fourth quarter.

Really risk-averse folks can mitigate some downside risk with a protective stop placed under the 50-day moving average.

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