BALTIMORE (Stockpickr) -- We've all heard this investment disclaimer before: "Past performance does not indicate future results."
But that phrase is actually a bit misleading. You see, while past performance doesn't indicate future results, the investment community has found that past performance is highly correlated with future results -- that is to say, a stock's future price movement has quite a bit to do with how it has moved in the past. That's a precept that scores of
(such as technical traders and statistical arbitrage hedge funds) have used to generate gains for years. And it's one that we're going to take advantage of today to try to get a handle on where some of Wall Street's biggest stocks are heading.
Technical analysis uses a stock's price movements to determine where shares are headed in the future. Technical charts are used every day by proprietary trading floors, the Street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
at how some of the biggest names on Wall Street are trading technically.
Bank of America
has been struggling to keep up with the rest of the market this year.
While the broad market has slid more than 4% so far in 2010, the giant bank has seen its shares tumble more than 11%. That underperformance comes despite the fact that Bank of America sports an enormous deposit base, a newly acquired wealth management powerhouse and a dominant retail banking presence in a handful of key markets. Shareholders could see their patience vindicated next week -- in the short term, at least.
Shares of Bank of America hit support on Wednesday and are just starting to bounce higher. While the upside potential for this stock isn't mind-blowing right now, it shouldn't be eschewed; shares will likely make their way to moving average resistance at around $15.50 if the bounce holds up. Strong performance early in Thursday's trading makes it look like that's exactly what's going to happen starting today.
As always, if you want to bet on an upswing in this stock, it's essential to protect yourself. Place a stop right under support $13.45 if you decide to move on Bank of America.
has also had a slow start to the year, but unlike Bank of America, this communications and networking play has the potential to fall ahead of its August 11 earnings date.
In the data networking market, Cisco is the hands-down leader. The company owns impressive IP technologies and has a brand name that enterprise and retail clients trust. But that hasn't quelled the recession-induced sales slowdown. And it won't shake off a short-term downtrend.
Cisco saw a double top last week at $24, a reversal that pushed shares back below the 50-day moving average. Since then, the 50-day has been acting as resistance, holding share price levels underneath it. With double-top resistance just overhead and shares tracking sideways at present, a downward push seems likely. I'm betting that shares will tumble to $21 by August.
If you want to bet on a downside move for this stock, place your stop above the 50-day moving average.
Sometimes, knowing which issues to trade is half the battle -- and in
case, it's a losing one.
While the diversified miner has potential upside in its shares right now, minuscule upside gain potential is telling traders to hold off on this one. Right now, shares are trading upward between the moving averages. But with little space between shares and the stronger 200-day moving average right now, there's a lot more downside risk than there is upside potential. If you want to take a trade on BHP Billiton, I'd recommend waiting for shares to bounce off of the 200-day and go short, or in the case of a break above the 200, wait for confirmation in the form of support at the 200-day.
In the short term, at least, there are too many higher-potential trades out there to justify taking on a sniping trade like this stock.
Who Owns BHP Billiton?
To see this week's trades 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.