These 5 Big Stocks Are Breaking Out This Summer

Here's a technical look at how to trade some of the biggest stocks on the market right now.
By Jonas Elmerraji ,

Editors' pick: Originally published June 30.

The market is on the mend.

In the last two trading sessions, the S&P 500 index has managed to claw its way 3.5% higher, with 482 of the stocks in the big market index up during that stretch. In short, it's been a heck of a rebound. And while the S&P is still a couple of points below where shares sat just a week ago, it's become clear that, as stocks shake off their post-Brexit tremors, not all stocks are rebounding equally. Some are looking more elastic than others, and a handful of big S&P components are already back to posting new highs.

To find the stocks that look primed to hand investors upside moves this summer, we're turning to the charts for a technical look at five big stocks that are on the verge of breakout territory as we head into July.

First, a quick note 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.

Novartis

Leading things off today is $218 billion pharma stock Novartis (NVS) - Get Report . Novartis has been all over the place in 2016, but the trend investors should be paying attention to is the 14% rally since shares bottomed back in February. Don't worry if you missed that upward move in Novartis. Shares look ready to kick off a second leg higher this summer.

Novartis has spent the last month and change forming an ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares (at $82 in this case), and uptrending support to the downside. Basically, as Novartis bounces in between that pair of technically important price levels, it's been getting squeezed closer and closer to a breakout through its $82 price ceiling. When that breakout happens, we've got our buy signal.

At the bottom of Novartis' chart relative strength has been adding some evidence for an upside move. Relative strength measures Novartis' performance versus the rest of the broad market, and the uptrend that this indicator has been showing since April means that NVS is beating the averages long-term right now.

Once shares are able to catch a bid above $82, we've got our signal to buy.

Philip Morris International

We're seeing the exact same setup in shares of Philip Morris International (PM) - Get Report  right now. Like Novartis, Philip Morris International has been forming an ascending triangle pattern. The price level to watch is resistance up at $102.

What's so special about the $102 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle setup in Philip Morris International, are a good quick way to identify what's going on in the price action, but they're not the actual reason that makes the stock tradable. Instead, the "why" comes down to basic supply and demand for PM's shares themselves.

The $102 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 been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $102 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Once Philip Morris manages to definitively move above $102, we've got a new buy signal in this stock.

Goldman Sachs

No doubt about it, 2016 has been an awful year to own shares of Goldman Sachs (GS) - Get Report . Since the start of the year, this investment banking giant has seen its share price backslide by almost 20%, underperforming the rest of the market by a huge margin. That's the bad news. The good news is that this $62 billion financial firm is starting to look "bottomy" this summer.

Goldman Sachs has spent most of 2016 carving out a "double bottom" pattern, a bullish reversal pattern that looks just like it sounds. The double bottom is formed by a pair of swing lows that bottom out at approximately the same price level -- the buy signal comes on a push through the peak that separates that pair of troughs. In Goldman's case, that happens at the $165 price level.

Price momentum, measured by 14-day RSI up at the top of the chart, is the side indicator to watch right now in shares of Goldman Sachs. Our momentum gauge made slightly higher lows corresponding with the stock's pair of price lows, a bullish divergence that signals buying pressure has been building behind the scenes.

Shares still have a way to go before they make it back to $165, but a breakout above that price level signals an important change in trend for this big financial stock.

Intel

You don't need to be an expert trader to figure out what's going on in shares of $153 billion chipmaker Intel (INTC) - Get Report  -- the price setup on this tech giant's stock chart is about as simple as they get. Going on almost a year, Intel has been moving up and to the right in a well-defined uptrending channel. And Intel still looks like a "buy the dips stock" this summer.

Intel's uptrend is formed by a pair of parallel trendlines that have corralled this stock's price action all the way back since last summer. Support is the line that traders should be eyeing here. So far, every test of the bottom of Intel's price channel has provided investors with a low-risk, high-reward opportunity to build a position in this stock. And shares are bouncing off of support for a sixth time this week. From here, it makes sense to buy the next bounce off of trendline support.

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, invalidating the upside trade). Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring Intel can actually still catch a bid along that line before you put your money on shares.

United Parcel Service

Last on today's list of big-cap potential breakouts is $94 billion package delivery company United Parcel Service (UPS) - Get Report . UPS has been a strong performer for most of 2016, up more than 10% since the calendar flipped to January. And now an atypical price pattern is signaling a potential up-move if UPS can continue its charge through $106 this week.

UPS has spent the last few months forming an inverse head and shoulders pattern, a classic reversal pattern that indicates exhaustion among sellers. You can spot the pattern 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," which comes in at $106 in the case of UPS.

Typically, the inverse head and shoulders shows up at the bottom of a downtrend, not after an up move like we're seeing in UPS. That said, the price action may not be "textbook" per se, but it's still tradable. Shares peeked above $106 by the close on Wednesday, but it's too small of a move to be called a breakout at this point. If shares can make their way above last Thursday's highs, consider it a confirmed buy signal. When that happens, support at the 50-day moving average becomes a logical place to park a protective stop.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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