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

Here's how to trade some of the biggest stocks on Wall Street.
By Jonas Elmerraji ,

BALTIMORE (Stockpickr) -- March is coming in like a lion, all right. Since the calendar flipped to the new month, the big S&P 500 index has shed more than 3% of its price, digging into negative territory for 2015.

Investor anxiety is ramping up as a result. In recent trading sessions, some of the highest-volume issues have been speculative leveraged ETFs. No, that's not an indication that investors are getting more aggressive with their stock market bets; it means that speculators are the only ones comfortable enough to trade in this market. We're seeing that play out in the investor sentiment numbers too. For instance, AAII Sentiment peaked at 51.7% bullish on Jan. 1. Since then, it's dropped to 39.8%.

It's almost enough to make you forget that we're only 3.8% shy of all-time stock market highs in the S&P right now. Almost.

The fact of the matter is that stocks are still undeniably in an uptrend right now, even if investor ennui is gripping the markets this month. And some of the biggest stocks on Wall Street are looking tradable now. Today, we'll turn to the charts for a technical look at five of them.

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.

Celgene

Up first is Celgene (CELG) - Get Report, a $93 billion biopharmaceutical stock that's been anything but sluggish over the past year. Since last March, Celgene has rallied just over 50%, stomping the performance in the S&P 500 more than five times over. But don't worry if you've missed the move in Celgene -- this stock looks ready to kick off a second leg higher in the near-term.

Celgene is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares up at $125, and uptrending support to the downside. Basically, as Celgene's share price bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout above that $125 price ceiling. When that breakout above $125 happens, we've got our buy signal in this stock.

Why all of that significance at that $125 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle in Celgene, 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 CELG's stock.

The $125 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 $125 so significant. The move means that buyers are finally strong enough to absorb all of the excess supply above that price level.

Don't be early on this trade. Shares of Celgene are testing the bottom of their triangle this week.

International Business Machines

Things have looked a little less auspicious lately over at International Business Machines (IBM) - Get Report. Big blue has shed more than 16% of its market value over the last 12 months, dragged lower by waning growth forecasts and stiff competition. But IBM's underperformance could soon be coming to an end. This stock has been basing for months now, and it becomes a buy above $165.

The sideways price action in IBM is a "rectangle" pattern. It gets its name because the pattern basically "boxes in" shares between those support and resistance lines. For IBM, the levels to watch are resistance up at $165 and support at $150. It pays to be reactionary with this price chart, after all, rectangles are "if/then patterns." Put a different way, if IBM breaks out through resistance at $165, then traders have a buy signal. Otherwise, if the stock violates support at $150, then the high-probability trade is a sell.

Those aren't equally likely outcomes, however. Momentum, measured by 14-day RSI, has been making higher lows ever since IBM's big gap-down at the end of October. That adds some extra confidence to upside in IBM right now.

Wait for $165 to get taken out by more eager buyers before you put money on this trade.

UnitedHealth Group

You don't have to be an expert technical trader to figure out what's going on in shares of $106 billion healthcare giant UnitedHealth Group (UNH) - Get Report. Instead, the price action in this stock has been about as basic as it gets. Shares have been making their way up and to the right in an orderly fashion since this past fall. That makes UNH a textbook "buy the dips" stock.

The uptrend in UNH is actually a channel -- that price channel is bounded by a pair of parallel trend lines that identify the high-probability range for shares to stay within. Put simply, every bounce off of trend line support has been an opportunity to buy, and shares are coming down to re-test support again this week. From here, it makes sense to buy the next bounce off of the blue line.

The 50-day moving average has been a good proxy for support going all the way back to October. If you decide to get in here, the 50-day is a logical place to park your stop loss.

Ford Motor

Ford Motor (F) - Get Report is another big stock that's been bouncing its way higher in an uptrending channel in the last several months. Now, just like with UNH, the high probability trade in Ford is to wait for the bounce and then buy it…

Waiting to buy off a support bounce makes sense for two big 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 support gets violated, and 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 Ford can actually still catch a bid along that line before you put your money on shares.

Relative strength is the side-indicator to watch in shares of Ford right now. Our relative strength line has been un an uptrend of its own going back to the bottom of the price channel, an indication that Ford isn't just moving up, it's also outperforming the broad market in good times and bad ones. As long as that uptrend in relative strength remains intact, Ford should keep outperforming the rest of the market.

Wells Fargo

Last up on our list of must-see charts is big bank Wells Fargo (WFC) - Get Report. Wells has basically been churning sideways over the last six months now, and while the Fed's stress tests have been grabbing the headlines in the last week or so, it's the technical setup in shares that should be getting traders' attention. Here's how to trade it.

Wells Fargo is currently forming an inverse head and shoulders 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 at $55.50. Even though WFC's price pattern isn't exactly textbook (this setup is typically a reversal at the bottom of a downtrend, not a continuation pattern after a move higher), the trading implications aren't changed here. If shares can catch a bid above $55.50, Wells is a buy.

Lest you think that the inverse head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."

That's a good reason to keep a close eye on WFC's $55.50 level here.

Author had no positions in stocks mentioned.

Loading ...