BALTIMORE (Stockpickr) -- The market is starting off the day flat despite the veracity of yesterday's selloff, a telling sign of the conviction -- or lack thereof -- of buyers in the market right now.
With publicly traded equity markets yielding mediocre performance in the second quarter, companies are turning elsewhere for cash; as a result, M&A deals and bond issues are decidedly on the rise this year. It's yet another illustration of the difficult market environment that traders are currently facing as the broad market continues to range.
Even so, with equities likely to revert to directional trading soon, it's worthwhile to get ready for a return to trading with a look at new technical setups for the week.
is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's chart patterns 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.
Here's a look at
First up this week is
, a stock that's currently showing a less-than-auspicious setup amid a similarly positioned market. In 2011, shares of CIT have slid more than 12% -- a statistic that pins the firm's underperformance of the
at a painful 17.44% since the first trading day of January. And as of today, shares look like they could be pointed markedly lower in the near term.
That's because of a bearish head-and-shoulders top that's currently forming in shares. The head-and-shoulders is perhaps one of the most well-known technical setups in existence because of its unique pattern and notable name, but it's also one of the most misapplied. Essentially, a head-and-shoulders top (which is characterized by two shoulder peaks with a larger head peak in between) signifies exhaustion among buyers of a stock. It only becomes an actionable trade when shares can manage to break below the neckline -- until then, it's not a high probability trade.
But traders should take note of the setup, wacky name and all. Backtesting in recent university research suggests that the head-and-shoulders pattern is able to provide economically significant profits when applied correctly.
As of the most recent reporting period, CIT shows up in such professional portfolios as
, which increased its position by 13.8% in the first quarter, and
, whose Greenlight Capital has a 6. 7 million-share position.
Meanwhile, a somewhat less-bearish setup is taking place in shares of
, whose shares have been trading in a tight consolidation range, creating what I like to call an "if/then setup."
Essentially, an if/then setup works like this: Shares are constrained between strong support and resistance levels that act as an intermediate price floor and ceiling for shares. A breakout outside of that channel means that demand or supply (respectively) have been absorbed, and a high-probability trade exists in the direction of the breakout.
In M&T Bank's case, those support and resistance levels come at $85 and $90. If a breakout does occur, I'd suggest placing a protective stop just within the channel.
I highlighted M&T Bank earlier this month in "
." It shows up in the ever-popular
, whose Berkshire Hathaway maintained a 5.4 million-share position in the stock in the first quarter.
A somewhat similar setup is taking place in shares of
, with the exception of one key difference. In the chart of Ameriprise, shares are making higher lows -- a fact that gives the stock an uptrending support level below and a horizontal resistance level above. That change makes this formation an ascending triangle pattern, a setup that (unlike an if/then trade) shows directional bias in advance of any breakout.
Because it's currently sporting an ascending triangle setup, that bias is to the upside.
Even though the ascending triangle gives an advanced hint about its eventual direction, it's still essential to wait for an upside breakout above $64. After that, keep a protective top just below the 50-day
Big bets on Amerirpise include
, which reported an 11.3 million-share position in the stock at the end of the first quarter.
Another strong ascending triangle setup this week comes from
, an $8 billion insurance firm that's currently showing resistance at $27.
Unum's ascending triangle is particularly strong, with four previous tests of resistance failing to sustain a move above $27, and a staunch trendline support level below. As with Ameriprise, the 50-day moving average is within the triangle setup, providing a solid secondary support level and protective stop target for traders looking for a technically relevant stop level.
Betting on Unum Group is
, with a 2.7 million-share position as of the most recent period.
Last up this week is
, a packaging and container firm that's currently in the midst of an uptrending channel. Essentially, a channel up is restricting price action for GEF with dynamic support and resistance levels. Those levels are crucial because they provide low risk entry points and well-defined price targets for traders.
Right now, the low risk entry comes as close to
as possible. That said, it's still necessary to wait for a definitive trigger with a trend channel. Because trend lines do eventually fail, it's important to wait for an actual bounce off of support before going long. That support bounce confirms that the price floor is holding up.
To see these plays in action, check out the
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned.
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 Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.