5 Huge Stocks to Trade for Huge Gains: Must-See Charts
It's early, but it looks like November trading is carrying October's rally into the new month. In the first few sessions of November, the S&P 500 has jumped just over 1%. Since the calendar flipped, 357 of the 500 stocks in the big index have found higher ground.
On a total returns basis, that recent run of performance means that the S&P has paid investors 9.45% gains since Oct. 1. Stocks are rallying hard right now. To put it in perspective, that's a 163% annualized gain if that pace persists until October 2016. That upside action is providing investors with some attractive trading opportunities in some of Wall Street's biggest stocks.
To take advantage of that sentiment shift, we're turning to the charts for a technical look at five big stocks that look ready to hand out breakout gains this fall.
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. Research shows that skilled technical traders can bank gains about 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.
Williams Partners
With a few exceptions, the energy sector has been a pretty rough bet in 2015 and $22 billion Williams Partners (WPZ) hasn't been an exception to that rule. Even factoring in this stock's huge dividend payout, it's managed to lose about 26% of its value between January and today. But long-suffering shareholders could be in for a reprieve.
Williams has spent the last couple of months forming a "double bottom," a bullish reversal pattern that looks just like it sounds. The pattern is formed by a pair of swing lows that bottom out at approximately the same price level, and then triggers when shares break out above the peak separating those two troughs. For Williams Partners, that breakout level to watch is being tested this week at $35.
Here again, momentum at the top of the chart provides some extra confirmation to upside in this trade. During the pair of price bottoms, the 14-day Relative Strength Index made a pair of higher lows in Williams Partners, a bullish divergence. If Williams Partners can show us a confirmed breakout by holding $35 through two consecutive trading sessions, then this stock becomes a buy.
Toyota Motor
All of the negative attention on German automaker Volkswagen this fall appears to be providing a shot in the arm for Japan's Toyota Motor (TM) - Get Report . While Toyota has spent much of the year trending lower, shares pulled an about-face back in late August, and they've been pointing higher ever since. This week, Toyota looks ready for another leg higher and the good news is -- you don't need to be an expert technical analyst to figure out why.
Since August, Toyota has been bouncing its way higher in a well-defined uptrending channel. That trend may still be pretty new, but it's been holding up well for the past few tests of trend line support. Put another way, each test of the bottom of that channel has provided a very attractive buying opportunity from a risk/reward standpoint. As shares test support here, we're getting another potentially buyable bounce.
Patiently 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 also 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 eventually break, but by waiting for a bounce to happen first, you'll ensure that Toyota can still catch a bid along that line before you put your money on shares.
At a glance, Toyota's chart looks a little "gappy." Don't get thrown off by that choppy appearance to Toyota's trading. Those gaps, called "suspension gaps," are caused by overnight trading on the Tokyo and London stock exchanges. They can be ignored for trading purposes.
Schlumberger
Last up on our list of big tradable stocks is $102 billion oil field servicer Schlumberger (SLB) - Get Report . Like Williams Partners, Schlumberger has shown investors a pretty rough ride in 2015. Since this time last year, shares have lost almost 15% of their value from a price standpoint, but Schlumberger is starting to look "bottomy" this fall.
Schlumberger has spent the last few months forming an inverse head-and shoulders pattern, a bullish reversal setup that indicates 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 was the $77.50 level in shares of Schlumberger that triggered a buy with last week's breakout.
Yesterday's little correction in this stock provides traders with a slightly improved entry price for the SLB trade. As with any technical trade, risk management is key here. Prior support at $72.50 is a good place to park your protective stop in Schlumberger. If that $72.50 price gets violated, then the inverse head and shoulders is broken and you don't want to own it anymore.
Apple
It's time to take a second look at Apple (AAPL) - Get Report . When we last looked at Apple a week ago, this tech behemoth had just reported earnings and was testing a key breakout level. Since then, shares have posted pretty strong one-week performance, managing to add another 2.3% to their price tag.
But what's more significant is the fact that Apple is clearly in "breakout mode" right now. And shares have effectively cleared a path to re-test prior highs from earlier this year up at $132.50. That price level has acted as a major ceiling for shares of Apple this year, most conspicuously with the major reversals that shares saw in February, April and July. A breakout above $132.50 would mean new split-adjusted, all-time highs for Apple and, more importantly, signal that the glut of supply of shares in place earlier this year has been completely absorbed by increasingly eager buyers.
In the meantime, now looks like a good opportunity to build a position in Apple following last week's breakout. If you do decide to buy here, risk-averse traders should park a protective stop on the other side of the 50-day moving average. That level looks like it's acting like a proxy for prior support at this point.
Northern Trust
Besides the fact that both companies are tasked with sitting on a mountain of cash right now, there isn't a lot of business overlap between Apple and large-cap custody bank Northern Trust (NTRS) - Get Report . Even so, we're seeing nearly the same setup in Northern Trust this November. But the big difference is, our bank's price action, which is about a week behind, is only testing its breakout level today.
Northern Trust has spent the last two months forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares (at $72 in this case), and uptrending support to the downside. Basically, as Northern Trust bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout through our near-term $72 price ceiling.
If shares can hold a move above $72 in today's trading session, we've got our buy signal.
Momentum, measured by the 14-day RSI, adds some extra confirmation to upside in Northern Trust right now. Our momentum gauge has been in an uptrend of its own since August, making higher lows as Northern Trust carved out its pattern. That bullish signal indicates that buyers are quietly stepping back into this stock.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author was long Apple.