How to Trade 3 of the Market's Most Active Stocks
Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.
From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It's a concept that's known as "crowdsourcing," and it uses the masses to identify emerging trends in the market.
Crowdsourcing has long been a popular tool for the advertising industry, but it also makes a lot of sense as an investment tool. After all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.
While some fund managers are already trying to leverage social media resources like Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for investors who want a starting point in their analysis.
Today, we'll leverage the power of the crowd to take a look at some of the most active stocks on the market.
Alcoa
- Nearest Resistance: $11
- Nearest Support: $8
- Catalyst: Hedge Fund Stake
Shares of aluminum giant Alcoa (AA) - Get Report are popping 5% this afternoon, boosted by news that hedge fund Elliott Management had picked up a 6.5% stake in the firm and was endorsing Alcoa's plan to split into two separate companies. Investors are picking up shares of Alcoa, in hopes that they can ride Elliott's coattails to gains.
From a technical standpoint, at least, Alcoa has been looking "bottomy" in the long-term, forming a double bottom pattern that triggers a buy with a breakout through prior resistance at $11. While Alcoa does have room between where shares currently sit and that $11 breakout level, the trajectory looks attractive here.
TeleCommunications Systems
- Nearest Resistance: $5
- Nearest Support: $4.90
- Catalyst: Acquisition
Small-cap communications services provider TeleCommunications Systems (TSYS) is up 12% on big volume in one day on Nov. 23, spiking following the announcement that Comtech Telecommunications (CMTL) - Get Report is acquiring the smaller firm for $5 per share in cash. Shares are now trading for a tiny discount to the deal value, suggesting that Wall Street expects the buyout offer to go off without a hitch.
For late-to-the-game traders, the money's already been made on the TeleCommunications Systems deal. It makes sense to look elsewhere for high-probability setups.
Freeport-McMoRan
- Nearest Resistance: $10
- Nearest Support: $8
- Catalyst: Technical Setup
Mining giant Freeport-McMoRan (FCX) - Get Report has shed a large amount of market value this month, down on big volume for technical reasons. Freeport started off the fall looking constructive, making a series of higher lows and highs in a new uptrend, but that uptrend got violated earlier this month, clearing the way for a re-test of key support at $8, a level that's getting tested.
Put simply, $8 is an important price floor for Freeport this month. If it gets violated, then shares open considerable downside risk in the final stretch of 2015. For that reason, it makes sense for investors to keep a close eye on this commodity stock in November.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.