BALTIMORE (Stockpickr) -- Could a fiscal cliff deal be stuffing investors' stockings before the end of the month? The probabilities of that happening are starting to look up after the latest update on the negotiations between President Obama and Speaker Boehner.
A quick resolution would put an end to one of the biggest barriers to a stock rally right now, quelling some of the extra anxiety that investors are shouldering. With the New Year fast approaching, investors are getting reminded of 2012's bullish first quarter price action. Thanks to a number of structural similarities between then and now, we could very well see a repeat performance when the calendar flips over to 2013.
That's why we're taking a technical look at the five setups that have the tradable price setups right now.
For the unfamiliar,
is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
So, without further ado, let's take a look at
worth trading now.
Fortune Brands Home & Security
There's no two ways about it -- it's been a stellar year for shareholders of
Fortune Brands Home & Security
: shares of the $4.8 billion home improvement and security stock have rallied more than 74% since the first trading day in January. And now, it looks like Fortune could be headed even higher in 2013...
That's because shares are currently forming an ascending triangle pattern, a bullish setup that's formed by horizontal resistance to the upside and uptrending support below shares. As FBHS bounces in between those two lines, it's getting squeezed closer and closer to a breakout above that $30 resistance level. When the breakout happens, traders have a buy signal for this stock.
As close as FBHS is to that $30
right now, this trade looks likely to trigger this week; that's why it's worth keeping a close eye on. The
has acted as a pretty good proxy for support in the last two months, so it's a logical place to put a
We're seeing almost the same setup in shares of
. Like FBHS, Weight Watchers is forming an ascending triangle, with one big caveat: the ascending triangle setup in Weight Watchers is coming at the bottom of a downtrend instead of the top of an uptrend. Even so, the trading implications for both stocks are the same. In WTW's case, the buy signal comes on a breakout above $57.
When you're looking at trades like WTW or FBHS, it's important to think about them in terms of buyers and sellers. After all, patterns like the rectangle don't work because of magic or geometry. Instead, it all comes down to supply and demand in the market. That resistance level at $57 is a price above which there's a glut of supply of shares (it's a place where sellers are more eager to sell and take gains than buyers are to buy). That's why a move above that level is a buy signal -- if WTW can print above $57, it means that increasingly eager buyers have absorbed all of that excess supply that was sitting overhead.
It's worth noting that this could be more than just a short-term pop for WTW -- instead, it could be the start of a new major trend. That's because the 50-day and 200-day moving averages are both starting to roll over and turn higher. The move above $57 would also create a bullish moving average crossover, an added piece of confirmation for upside in this stock. With all of that in mind, it's critical to wait for the breakout before buying...
is another stock that's showing traders a bullish buying opportunity this week. For Garmin, the setup in play is a double bottom, a reversal pattern that's formed when a stock makes two big swing lows that bottom out at approximately the same level. The buy signal becomes the breakout above the peak that connects those twin troughs.
For Garmin, that breakout level comes in at $43. A move above that price is our buy signal in this $8 billion GPS maker...
Garmin could get an added shot in the arm from its inclusion in the
index -- the firm took its spot in the big index after the close on December 11. Between forced buying from index funds and the psychological effects for retail investors, GRMN could well see its momentum continue for a while.
That's the story at retail broker
too. Like Garmin, TD Ameritrade is forming a double bottom pattern, with two swing lows finding support right around $15. For AMTD, the breakout comes on a move above $18.
There's some extra confirmation coming from
right now as well. 14-day RSI has been in an uptrend since Bottom 2 started forming, a sign that price was starting to increase at an increasing rate. Because momentum has been a good predictive indicator for the stock over the past year, that push to new highs in RSI is an auspicious sign for AMTD shareholders. Remember, an overbought reading isn't necessarily a bad thing -- statistically stocks that become overbought are likely to get
overbought in the near-term than they are to reverse.
Even though this stock has further to move higher before the breakout happens (GRMN, for instance, is just below its resistance level right now), the big benefit is that high correlations in the broad market will make similar setups like Garmin good predictors for what happens in AMTD. Don't buy this name until the breakout actually happens...
Last up is
, a small-cap heating and air conditioning maker that sells climate control solutions to both the consumer and commercial markets. It doesn't take an expert market technician to see what's going on in Lennox's chart right now -- this stock has been trading higher for all of 2012, climbing more than 54% year-to-date. But is the fact that the rally has been orderly that makes this stock tradable.
That's because LII is currently bouncing higher within an uptrending channel, a price range that's bounded by trendline resistance overhead and trendline support below. Since the start of the year, the channel has done a good job of identifying the likely extent of this stock's moves. Any stock in an uptrending channel presents a buying opportunity, but for risk-averse investors, the best time to buy comes after a bounce off of support.
That bounce is important because it shows that LII can still catch a bid at support
you buy -- support levels do eventually fail, and when they do, you don't want to be left holding the bag. The fact that support has held up on the last seven tests of that price level bode well for more upside. If you decide to be a buyer, I'd recommend keeping a stop just below that support line.
To see this week's trades in action, check out the
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At the time of publication, author had no positions in stocks mentioned.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
, and on
Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Jonas Elmerraji is the editor and portfolio manager of the
Rhino Stock Report
, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
, and has been featured in
Investor's Business Daily