BALTIMORE (Stockpickr) -- The market made a lower open on Thursday, a sign that investors are still squeamish about the headline-driven fundamentals that are ruling the market right now. This afternoon, President Obama will address Wall Street, asking for financial firms to help Washington in the path to reform. The President's message comes at a crucial time for Wall Street. With allegations swirling about multiple firms' involvement in less-than-ethical activities, the public is adamant about putting financial execs to task on the issue.
But it's also a strategically smart time to talk about the dirty work of reform -- after all, with upbeat earnings in play all week, it's unlikely that the politics will impact the market. Instead, to find the stocks most likely to swing in this environment, it's time once again to turn to the technicals.
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.
Every Thursday, Stockpickr analyzes the technicals for some of Wall Street's highest-volume stocks and takes a look at how to trade them. Here's
at how some of the biggest names on Wall Street are trading technically.
Members-only warehouse retailer
has been having an interesting year. The company, which operates 560 stores worldwide for 55 million members, has already seen shares jump 30% in the trailing 12 months as financial conditions for retailers have improved precipitously. Now, this stock could be facing additional buying pressure thanks to bullish technicals.
Despite strong competition from similar-format stores such as
Sam's Club, Costco has been the league leader for quite some time. With considerably more SKUs on the shelf and a focus on moving higher-cost, higher-margin products, Costco has competitors beat on sales despite a smaller store footprint nationwide. In total, the company earns nearly twice as much per square foot as Sam's does.
Since the start of 2010, shares of Costco have been forming an ascending triangle pattern, and although that pattern still remains in the early stages, now's the ideal time to identify potential high-probability trades like this one. Shares' biggest challenge in the short term will be breaking above the 50-day moving average. Longer-term, wait for shares to push through the horizontal blue resistance line, and then consider going long.
There's a markedly different tone in the chart of independent oil and gas producer
. Talisman has been in transition since last year, when management announced that the company would be shifting its focus on exploration and production to higher-risk energy properties. In the short term, the biggest risk for shareholders could be the pattern that's forming in the company's stock chart.
Although management's plan to transition to less-conventional oil and gas deposits sounds alluring, the company's ability to turn a profit lately has been marred by the high costs of a new strategy. Those double-digit negative margins come at a time when other stocks -- even including resource plays -- are making historic profits, and they're doing a good job of scaring investors away from their strategic vision. That's likely going to persist in the short term.
But fundamentals aside, an even more ominous short-term trend could be in the works thanks to what looks like a bearish head-and-shoulders pattern in the stock. With a head and shoulders, the key level to watch is "shoulder level" -- the blue line beneath the pattern. If shares break down below shoulder level, bounce up to test the line, then bounce back down, it could be time to short shares.
Just don't forget about the likelihood of that second bounce.
With an increased interest in financial stocks this week, it's no surprise that German banking giant
is seeing an uptick in volume despite a big slide on news of the
suit last Friday. But things could be getting better for shareholders -- after they get worse, of course.
Deutsche Bank's stock price tumbled after the Securities and Exchange Commission decided to sue Goldman Sachs for defrauding investors in its Abacus CDO -- the biggest intraday fall for the bank since last July. And right now, Deutsche Bank's price action looks like it'll be to the downside. But with strong support at the 50- and 200-day moving averages not far away -- and a bullish moving average crossover about to happen -- shares are likely to bounce back up for a long-side trade.
To see this week's trades in action, check out the
-- Written by Jonas Elmerraji in Baltimore.
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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