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5 Big Charts Ready to Break Out in May

DaVita HealthCare Partners

Last up on our list of big-name trades is DaVita HealthCare Partners (DVA), a name that's been consolidating sideways after staging a 21% move higher over the last six months. That sideways churn is setting the stage for a big leg up in May.

DaVita is forming a rectangle pattern, a price setup that's formed by a pair of horizontal resistance and support levels that basically "box in" shares between $70 and $67. Rectangles are "if/then patterns." Put a different way, if DVA breaks out through resistance at $70, then traders have a buy signal. Otherwise, if the stock violates support at $67, then the high-probability trade is a sell. Since DaVita's price action leading up to the rectangle was an uptrend, it favors a move to the upside through $70.

Why all of that significance at $70? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for DaVita's stock.

The $70 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $70 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Wait for shares to catch a bid above resistance before you buy it.

To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in the names mentioned. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji
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