5 Big Breakout Stocks to Trade for Big Gains: Must-See Charts

Here's a technical look at how to trade some of the biggest names on Wall Street.
By Jonas Elmerraji ,

BALTIMORE (Stockpickr) -- It's been a rough week to be a stock investor. Since last Friday, the big S&P 500 Index has unloaded around 3% of its value, dropping back down to near the breakeven mark for the year. Saying that stocks are flat in 2015 is true, but it really doesn't paint the full picture of just how nasty this recent correction has been.

That recent drop in stocks? That's a little more telling -- though it's not surprising.

U.S. stocks have been testing new all-time highs in recent sessions as recently as a month ago, so there's bound to be some big anxiety perking up this month. The important thing is that upside volatility is ratcheting higher too. So it's a little early to talk about "signs of a top" in stocks at this point. The rumors over this rally's death are greatly exaggerated.

In fact, some of Wall Street's biggest names are showing bullish price action this week. To make the most of it, we're turning to the charts for a technical look at five big-name stocks to trade for gains.

First, a little on the technical toolbox we're using here. 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 five big stocks to trade this week.

Express Scripts

Up first is $61 billion healthcare stock Express Scripts (ESRX) . ESRX has been in rally mode lately, up almost 16% in the last six months alone. But don't worry if you've missed the move up to now. ESRX looks ready to kick off a second leg higher in the near-term. Here's how to trade it.

Express Scripts has been forming a textbook ascending triangle pattern since the end of December, bouncing in between a horizontal resistance level up at $86 and uptrending support to the downside. Essentially, as Express Scripts swings in between those two technically important price levels, it's been getting squeezed closer and closer to a breakout above out $86 price ceiling. When that happens, we've got our buy signal.

Relative strength is the side indicator to watch in shares of ESRX right now. Our relative strength line has been un an uptrend of its own since last fall, an indication that Express Scripts isn't just moving up, it's also outperforming the broad market. As long as that uptrend in relative strength remains intact, ESRX should keep up that outperformance.

Make sure to hold out for a confirmed move above $86 before jumping in. This stock had a bull trap at the end of February that lured over-eager buyers into shares.

Rockwell Automation

Things haven't looked quite so bullish lately in shares of $15 billion Rockwell Automation (ROK) - Get Report. This big industrial stock has actually shed 8% of its market value over the last 12 months. But that could be about to change in March. Right now, Rockwell is forming the exact same technical setup as the one in ESRX; ROK's chart is just happening in the longer-term.

The buy signal comes on a breakout above $117.50.

Why all of that significance at that $117.50 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in ROK, 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 Rockwell's stock.

The $117.50 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 $117.50 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 $117.50 before you buy ROK.

Lockheed Martin

Good news: You don't need to be an expert technical trader to see why Lockheed Martin (LMT) - Get Report is looking bullish right now. Instead, this big defense contractor is showing traders a setup that's about as simple as it gets. Lockheed has been a "buy the dips stock" going back to last summer, and so, as shares dip down for the seventh time, buyers should get ready to pull the trigger.

Since last July, LMT has been bouncing its way higher in a well-defined uptrending channel. The channel in Lockheed is formed by a pair of parallel trend lines that identify the high-probability range for shares to stay stuck within. Every test of trend line support since that July start date has provided a low-risk, high reward buying opportunity, and as this stock tests that same level for a seventh time in March, it makes sense to buy the next leg higher in shares.

The 50-day moving average has been acting like a decent -- if overly conservative -- proxy for support on the way up. If you're looking for a logical place to park a protective stop, plunk it on the other side of the 50-day plus some extra buffer.

Becton Dickinson

We're seeing the exact same simple setup in shares of health care stock Becton Dickinson (BDX) - Get Report right now. Just like Lockheed, Becton has been bouncing its way higher in a well-defined uptrending channel, so it makes sense to buy the next bounce higher. BDX's uptrend isn't as long-lived as the one in Lockheed, but that doesn't make it any less tradable right now. As shares come down to test support for a fourth time now, it makes sense to buy the bounce.

Waiting for that bounce is important for two key reasons: it's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Becton can actually still catch a bid along that line before you put your money on shares.

On the flipside, I'd recommend parking a stop on the other side of BDX's most recent swing low at $140.

Southern Copper



Things haven't looked to pretty for Southern Copper  (SCCO) - Get Report. Like its hard commodity peers, this metals producer has seen its share price erode since last summer. Today, shares are about 10% off from their highs last summer. But SCCO's trajectory could be about to change here. Shares are forming a long-term inverse head and shoulders pattern.

The inverse head and shoulders is a classic bullish reversal pattern. You can spot the inverse head and shoulders by looking for two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern’s “neckline” level. That's the $31 level in SCCO.

Momentum, measured by 14-day RSI at the top of the chart, adds some extra confidence to Southern Copper's upside. Our momentum gauge has been making higher lows on each of the pattern's lows, an indication that buying pressure is quietly building in shares. If buyers can shove SCCO through $31, then this languishing metals producer finally becomes a buy.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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