L.A. Little's post on four long ideas from a technical perspective appeared Monday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
This blog post originally appeared on
on Dec. 22 at 11:02 a.m. EST.
Attempts to tell the future are fraught with miscalculations and error, yet as analysts of the financial markets, we are occasionally obliged to look out as far as we can see and prognosticate as to what the future may be.
In doing so, one is tempted to go with the obvious choices: the safe over the risky, the slow movers over the high betas. If you had to pick a few equities that you could put your money in and ride for the year, what would they be? Which ones are likely to prosper in the coming year? On the flip side, what should you avoid or even short? What equities are likely to suffer in the coming year?
Today and next Tuesday I'll highlight some stocks that I find promising -- on both the long and short side. Given that I believe the coming year (and probably years) will provide us with a market stuck in a large range rather than an outright bull or bear market, covering both sides of the equation will be critical to making money. In fact, trading your equities rather than sitting on them will likely prove crucial to financial success.
I start with a retail name, not because I believe retail is the best place to be for the coming year, but because this name has come to own the fastest-growing segment of retail -- the Internet.
has proved its doubters wrong, even if it has taken a decade to do so. As you can see in the chart below, AMZN has finally made new all-time highs, and on a long-term time frame, it is a
confirmed bullish breakout.
The confirmation of all-time highs on volume is critical to determining that this latest burst higher in price has staying power. Looking to the intermediate-term time frame, we can see that the trend is also confirmed bullish as well.
Remember that for the purpose of this piece, we're looking at long-term time frames. As a result, entry timing and stop losses are naturally larger than most traders typically allow for most trades. If you have no position in AMZN, the initial purchase could be made in the $125-$130 price range. For those with an established position, the ideal "add to your position" point is around $116 to $120.
When you look at the charts from a long-term perspective, AMZN would be an even better buy on a close of the large gap up on the daily chart (not shown) around $98 to $100. The problem is, you can't count on a pullback that deep -- it's highly unlikely to happen anytime soon. Although you should make provisions for how you would trade this issue were such a pullback to occur, unless volume expanded tremendously into the $100 area, it would be a screaming buy at that price point, not a sell.
Next up is another name in the retail sector with huge potential,
Green Mountain Coffee
. The charts are outstanding, and the volatility allows you to both trade and accumulate it on a regular basis. Here's a chart showing the long-term time frame:
The long-term chart reveals both the volatility and bullishness of this name. The top-to-bottom range during the year-and-a-half consolidation phase throughout 2008 was 100%. Note that this range was in place during the 2008 crash, and though GMCR did sell down, it came roaring right back as well.
Once prices broke higher in early 2009, the floor that was built was a sturdy one. In my opinion, GMCR is doing the exact same thing now, but at a higher price level -- it is building the strong foundation needed for the next advance. Since it is so volatile, the stock allows you to build positions during the consolidation. For example, if you purchase 100 shares near the bottom of the range on a short-term chart and sell half of it near the top end of the range, after four trades, you will have established a 200-share position and will have padded your bank account by $3,000 at the same time (assuming a $15 profit on four 50-share trades).
The long-term chart is confirmed bullish, while the intermediate-term chart shows a confirmed sideways trend:
Although you naturally would like to make the bulk of your purchases in the "ideal buy zone," few of us ever buy the bottom and sell the top. Thus you have to work your way into the name as suggested above, and if the stock provides an ideal entry point, you have to be all over it. The ideal entry, of course, is a price decline where volume contracts when compared to the volume of the bar being tested. In the chart above, a price decline into the $50 area on volume of 10 million to 12 million shares would be an ideal buy point.
Let's switch gears and consider a financial name. Why a financial? Stability!
has quietly consumed a few competitors over the past couple of years, and it has done so at fire-sale prices. Those bargains are starting to show up on the bottom line, and given that the
is determined to push money into the money center banks to right their ships, JPMorgan stands to become even stronger over the coming year.
The long-term chart shows the support and resistance areas. If resistance is taken out in the coming year, the projection would point to the mid-$60s. Of course, there's a lot that has to go right with the general market for that to happen, and it's more likely we will see a further retracement before an attempt to push substantially higher.
Here's an intermediate-term view showing that larger retracement zone where one can purchase or add to existing positions:
The chart shows that volume characteristics so far are exactly what you would want -- price declines over time while volume remains subdued. Unless volume picks up appreciably as the buy zone comes into play, it is indeed a buy zone.
We'll round out today's picks for 2010 with a gold stock. This one isn't just any gold issue -- it's a small issue that has the potential for another double in the year to come, just as it has done in 2009.
is a gold exploration company that operates in Canada and the U.S. The company is based on the famed Red Lake district in Ontario, where huge finds are the norm. Rubicon's drilling so far has led to significant expectations in terms of quantity and quality of the gold found, and further upside surprises could come at any time. Do note that this is an exploration play, and as a result carries higher risk than a production company. On the flip side, the rewards can be fantastic -- and they've been stellar in this particular name.
The long-term chart reveals a confirmed bullish trend with huge volume expansion over the past year as the stock breaks higher:
The story is the same on the intermediate-term chart; the most desirable place to make additional purchases lies in the $3.40-to-$4 range. With gold beginning to consolidate once more and the dollar gaining strength, gold mining and exploration companies will come under pressure. If this stock gets pulled lower as a result of overall negativity in the gold market, have your buy orders ready and load up for the next inevitable run.
That's it for this week. Next week we'll look at a couple more longs and a couple of promising short ideas to round out the list of 2010 yearly picks. Until then, keep trading the charts!
By L.A. Little of tatoday.com, author of
At the time of publication, Little was long AMZN, GMCR, JPM and RBY.
L.A. Little is an author, professional trader and money manager who writes daily on
, a free educational site for traders and investors. He has been featured in Stocks & Commodities magazine and is the author of