Must-See Charts: Family Dollar, Amerigroup
BALTIMORE (Stockpickr) -- The trick for traders this week is searching out diamonds in the rough. From a technical analysis perspective right now, the vast majority of stocks are mirroring the market, and after the rally leading up to 2010, a pullback is leaving us devoid of any actionable trading patterns.
But while that's true for most stocks at the moment, it's certainly not true for all. With the quantitative metrics that technical analysis provides, we can separate the stocks set to make a strong move from the rest of the herd.
Technical analysis is a way for investors to quantify qualitative factors such as investor psychology based on a stock's chart patterns and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
But all too often, investors don't know where to start. So every week, Stockpickr takes a look at stocks that could be staging a technical move soon and compiles a portfolio of promising
.
Here's a look at this week's stocks.
Managed health care provider
Amerigoup
( AGP) may be following the same trends as the market, but a breach of some key thresholds makes the stock a potential short-side trade for this week.
Amerigroup has already caught the attention of many short sellers, having fallen more than 30% in 2008 and 2009, and should continue to attract more short-term shorts as the week progresses. Like many health stocks, the company has been plagued by speculation about how proposed healthcare reforms could affect its business.
In the last two trading sessions, Amerigroup made a decisive move below key support right at the intersection of the 200-day and 50-day moving averages. With that slide comes the potential for a breakdown to short term support right around $22.75. Don't consider going short until a second close below the black horizontal line.
The Laclede Group
(LG)
, a public utility holding company, has exhibited a similar pattern to Amerigroup's, but one key difference is where the stock stopped on its way down. LG found support at the 200-day moving average, which suggests that shares could be bound for higher ground in the coming week.
Right now, the biggest stumbling block for Laclede is the 50-day moving average (the thin blue line), but with the 50-day due to change course lower soon, the step up above it could be made much easier. The buy signal for this breakout is a close above the 50.
Discount retailer
Family Dollar Stores
(FDO)
should be a familiar name to frequent Stockpickr readers; the company made
last Friday. That dividend (and the earnings release that accompanied it) proved to be a good enough catalyst for a breakout earlier this month, but another potential breakout is lying in wait.
A bullish inverse head-and-shoulders pattern took the reigns of Family Dollar in the last quarter of 2009, pushing shares up to resistance under $31.50. The pop earlier this month took the stock back to that level, confirming it as a strong resistance price. But a bullish ascending triangle forming in the stock right now could be showing us a potential breakout above resistance and new highs.
Consider going long this stock on a break above the horizontal resistance line.
To see these plays in action, check out the
Technical Setups for the Week portfolio
on Stockpickr.
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At the time of publication, author had no positions in stocks mentioned.
Jonas Elmerraji is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.