BALTIMORE (Stockpickr) -- Janet Yellen's Fed is kicking the can down the road.
The Federal Open Market Committee gave investors a pleasant surprise on Wednesday by keeping the "considerable time" wording in their rate hike comments. Put simply, rates aren't going up any time soon. And given the context of the last few weeks, that's not hugely surprising.
After all, oil prices are in crash mode, stocks are correcting the fastest we've seen in more than two years, and Russia's economy is collapsing before our eyes. With the Fed's go-to inflation gauge plummeting to the lowest we've seen since 2010, our central bankers are a lot closer to a more aggressive move than they're letting on.
And if they pull the trigger on a more serious stopgap against deflation, stocks stand to benefit in 2015. To take full advantage of that, we're turning to the charts for a closer technical look at five big stocks to trade for gains.
First, a little on the technical toolbox we're using here. Technicals are 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 this week.
Brown & Brown
We're starting small today -- or at least smaller, considering the mega-cap status of the other names on this list. Up first is Brown & Brown (BRO) , a mid-cap insurance agency based in Florida. BRO is up more than 14% since the start of February, but don't worry if you've missed the move so far -- this stock is showing traders a classic bullish price setup this month.
Brown & Brown is currently forming a "cup and handle pattern." The cup and handle is formed by a cup-shaped rounding bottom in shares that's followed up by a short-duration channel down. The buy signal comes on a move through the pattern's price ceiling at $33. A move through $33 tells us that buyers are squarely in control again in BRO.
On the flip side, the 200-day moving average has been a pretty good proxy for support in the last few months, which makes it a logical place to park a stop loss order. Don't be early on BRO. It's not a high-probability trade until shares can catch a bid above $33.
Pharmaceutical company Sanofi (SNY) is having a rough year. Shares of the Paris-based drug maker are down more than 14% year to date, underperforming the S&P 500 by a pretty substantial margin. But long-suffering shareholders could be in store for a reprieve in early 2015 because shares are starting to look "bottomy" this December.
Sanofi is currently forming a double-bottom setup, a pattern that’s identified by two swing lows that take place at approximately the same level. The bottoms are separated by a swing higher that’s between them, and that peak is the breakout level that tells traders when the reversal pattern is complete. In the case of SNY, that level is at $49.
In the meantime, momentum adds some extra confirmation to the move; 14-day RSI made higher lows while price bottomed out at the same level. That's a bullish divergence that indicates buying pressure is building in SNY. The first close above $49 is a buy signal in this pharma stock.
The good news is that you don't need to be an expert technical trader to figure out what's been going on in shares of tech giant Microsoft (MSFT) -- this stock's chart is about as simple as they get. Microsoft has been a "buy the dips stock" for the last 14 months. And now, with shares testing a key support level in today's session, it makes sense to buy the latest bounce.
MSFT is currently bouncing higher in an uptrending channel, a setup that gives us a very high probability range for shares of MSFT to remain within. Trend line support is the price level to watch right now in Microsoft. Every test of that level since late 2013 has provided buyers with a low-risk, high-reward opportunity to build a position in shares.
Buying off a support bounce makes sense for two big reasons: It’s the spot where shares have the furthest 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 you know you’re wrong). With yesterday's white bar day in place on the chart, this week looks like as good a time as any to start building a position.
Goldman Sachs (GS) may not have much to do with the tech sector, but it's showing the exact same price action as we're seeing in Microsoft right now. Just like MSFT, Goldman is bouncing its way higher in a well-defined uptrending channel -- and shares are testing trend line support for a sixth time this week.
Relative strength is the side-indicator that adds confidence to the GS trade. This stock's relative strength line has been making higher lows since this summer, an indication that Goldman is outperforming the rest of the market in good times and bad ones. As long as that new relative strength uptrend remains intact, shares of this big bank should keep outperforming.
From a risk-management standpoint, it makes sense to park a stop just below this stock's most recent swing low at $175. If shares violate that level, then the uptrend is broken, and you don't want to own GS anyway.
Last up is Swiss banking stock UBS AG (OUBS) , a name that we looked at earlier this month when shares broke out above their downtrend. Since then, UBS has established itself in the early stages of a long-term inverse head and shoulders pattern. The buy signal comes on a breakout above this stock's neckline at $18.
Why all of that significance at that $18 level? It all comes down to buyers and sellers. Price patterns like the inverse head and shoulders 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 OUBS' stock.
The $18 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 $18 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Wait for the breakout to happen before you buy it.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in the names mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in
Investor's Business Daily
. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji.