5 Huge Stocks to Trade for Huge Gains

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

Investors liked what they read in the Fed's October minutes on Wednesday. The S&P 500 index rallied about 1% after the minutes release made a December interest rate hike sound more likely, shoving the big stock market index's gains to 1.62% for the session.

Wall Street has been warming to the idea of a rate hike. It wasn't all that long ago that the Fed's hints of tightening would spark selloffs across multiple asset classes. But that doesn't mean that investors are giving higher interest rates a "thumbs up." Instead, yesterday's rally probably has more to do with market participants not being caught off guard than with the central bank's endorsement of the economy's ability to handle a rate hike.

Either way, with Wednesday's Fed minutes out of the way and a bullish reaction in stocks yesterday, some of the biggest names on the market look primed for higher ground in the final stretch of 2015.

Today, we'll take a technical look at five mega-cap must-see charts that are showing off buy signals.

First, a little on the technical toolbox we're using here: technical analysis is 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.

Apple

At a glance, tech giant Apple (AAPL) - Get Report  has posted some so-so performance in 2015. On a total returns basis, Apple has handed investors 8% gains since the calendar flipped to January. And while that's certainly better than the broad market has performed, it's nothing to write home about compared to other gigantic tech peers like Amazon (AMZN) - Get Report  and Microsoft (MSFT) - Get Report .

But zoom in on the chart a bit and Apple's technical story starts getting a little more interesting. After correcting hard at the middle of July, shares bottomed in late August, and they've been legging their way higher in a well-defined uptrend ever since then. So far, Apple has shown traders four tests of the bottom of that nascent price channel -- the most recent of which came at the beginning of this week. And each of those four touches of trendline support has provided an excellent buying opportunity from a risk/reward standpoint.

So as Apple bounces off of support on the heels of Wednesday's broad market rally, we're looking at a pretty solid buying opportunity today. As with any trade, risk management is key if you decide to be a buyer here. Risk-averse traders should park a protective stop on the other side of Apple's most recent swing low at $112.50. If that $112.50 line gets crossed, then the uptrend in Apple is violated, and it's likely to move lower.

On the flip side, resistance up at $132.50 remains the big barrier for Apple bulls to conquer in order to resume a long-term uptrend.

Exxon Mobil

We're seeing the same setup in shares of integrated energy giant Exxon Mobil (XOM) - Get Report right now. No, it's not because Exxon's oil business has anything to do with Apple's technology exposure. Instead, these two massive stocks are trading alike because of high correlations in the broad market. But high correlations don't necessarily need to be a bad thing for investors, provided that the setups keep looking bullish.

Exxon has been in a well-defined uptrend since August as well, bouncing higher on every test of trend line support. Shares gave us their most recent test of the bottom of their price channel on Monday, and the bounce off of the bottom of that trend line is our buy signal.

Actually waiting for that bounce is important for two key reasons: It's the spot where shares have the most room 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 the channel breaks and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring Exxon Mobil can actually still catch a bid along that line before you put your money on shares.

The 50-day moving average has started acting like a good proxy for support in Exxon lately, which makes it a logical place to park a protective stop beneath.

Johnson & Johnson

No surprise, another utterly massive company is looking pretty similar to Apple and Exxon this fall. I'm talking about $280 billion health care firm Johnson & Johnson (JNJ) - Get Report . The correlations aren't quite as high in J&J -- unlike the other two big trades we've looked at so far, this stock isn't bouncing its way higher in an uptrend -- but it did bottom back in late August, and the buying pressure has been building ever since.

Zoom out on Johnson & Johnson's chart, and it's clear that this stock has been range-bound for most of 2015, pinballing between support down at $96 and resistance up at $102 for most of the year. In fact, shares actually only managed to leave that sideways range for a month and a half at the end of the summer, when J&J corrected hard. And the subsequent bottoming in this stock sent shares back into its sideways slump.

But what's notable now is the fact that this stock is testing a possible breakout to the top side of its trading range at $102. Shares closed yesterday at $102.65, a move that's not quite enough to call this a confirmed breakout -- but is enough to warrant keeping a very close eye on J&J during today's session. Another close above $102 today gives us a big confirmed buy signal in this blue chip health care stock.

Union Pacific 

$72 billion railroad stock Union Pacific (UNP) - Get Report  may have been selling off all year long, but long-suffering shareholders just might get a reprieve this fall. That's because, in the long-term, shares of Union Pacific are forming a bullish price setup -- and shares are about $10 away from reaching their big breakout level today.

Union Pacific has spent the last few months forming an ascending triangle pattern, a bullish price pattern that's formed by horizontal up above shares (in this case up at $97.50), and uptrending support to the downside. Basically, as Union Pacific bounces between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout through our $97.50 price ceiling. When that happens, we've got our buy signal.

Typically, the ascending triangle pattern is a continuation pattern that comes after some upside, not a reversal following a downtrend. But while Union Pacific's pattern may be a little unconventional, the trading implications are predictable once $97.50 gets busted. Why all of that significance at the $97.50 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle setup in Union Pacific, 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 Union Pacific's stock.

The $97.50 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 $97.50 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.

It's important to be reactionary here and wait for the $97.50 breakout; this stock doesn't become a high-probability buy until shares can catch a bid above that level.

Abbott Laboratories

Last but certainly not least on our list of large-cap breakout setups is $67 billion pharmaceutical stock Abbott Laboratories (ABT) - Get Report . Abbott Labs started 2015 in rally mode, climbing double-digits in the first six months of the year. That changed in mid-July, when Abbott rolled over, plummeting to a low of $39 in late September. But Abbott Labs is finally looking "bottomy" this fall -- and that could spell a return to this summer's highs as 2015 comes to a close.

Abbot Labs is currently forming an inverse head and shoulders pattern, a bullish reversal setup that signals exhaustion among sellers. 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 came on the breakout above the pattern's "neckline." That's the $46 level in Abbott.

Momentum, measured by the 14-day RSI, adds some extra confirmation to upside in Abbott right now. Our momentum gauge higher lows on each of the three troughs in Abbott's price action, creating a bullish divergence. Shares are testing that $46 price ceiling today. Keep a close eye on this one. 

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long Apple.

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