BALTIMORE (Stockpickr) – What do Apple (AAPL) - Get Report , Google (GOOG) - Get ReportShell () , CA (CA) - Get Report , and Wells Fargo (WFC) - Get Report have in common? They all look to make a big move higher in September.
A rising tide has been lifting all ships for the last few weeks as the S&P 500 plowed its way to new all-time highs in August. But this month, as the big index scrapes up against the top of its long-term trading range, it pays to be a little more selective with stocks again. Being selective doesn't necessarily mean sitting on the sidelines, however. Some of the biggest names on Wall Street are sending traders clear-cut buy signals in September.
So are you ready to take advantage of the technical this week?
If you're new to technical analysis, here's the executive summary.
Technicals are a study of the market itself. Since the market is ultimately the only mechanism that determines a stock's price, technical analysis is a valuable tool even in the roughest of trading conditions. Technical charts are used every day by proprietary trading floors, Wall Street's biggest financial firms, and individual investors to get an edge on the market. And research shows that skilled technical traders can bank gains as much as 90% of the time.
Every week, I take an in-depth look at big names that are telling important technical stories. Here's this week's look at five high-volume stocks to trade this week.
Up first is Apple (AAPL) - Get Report , a name that has all eyes on it ahead of the firm's big product launch event on Tuesday. So far, the build-up hasn't exactly been constructive for shareholders. Apple has lost 5% of its share price in the last two sessions, a reaction to a pair of new offerings from rival Samsung as well as gains-taking ahead of the media circus next week. But zoom out a bit and the context for Apple's price action doesn't look quite so scary.
Even better, you don't need to be an expert technical analyst to figure out why…
Apple has been bouncing its way higher in a textbook uptrending channel since the end of May, moving higher on every successive test of trend line support. So, as Apple tests that key support line for a fifth time here, we're coming up on what looks like another great opportunity to get into shares. Every test of support has been a low-risk, high-reward entry-point in AAPL, and there's no reason to think that this time it's different.
That bullish call is being backed up by relative strength right now. Apple's relative strength line has been in an uptrend of its own since shares kicked off their uptrend, indicating that Apple is outperforming the S&P 500 in good times and bad ones. As long as that uptrend remains intact, AAPL should keep doing better than the broad market.
We're seeing the exact same setup in shares of Google (GOOG) - Get Report right now. That's not hugely surprising. After all, it's logical for the price action in these two tech behemoths to have high correlations. And they do.
Like Apple, Google has been a textbook "buy the dips stock" since the end of May, bouncing its way higher in between a pair of parallel trend lines that have identified the high-probability range for shares to stay within. Now, after shares tested support to start the month of September, it makes sense to buy this bounce.
Waiting for this week's bounce is important for two key reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong).
Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Google can actually still catch a bid along that line before you put your money on shares.
Royal Dutch Shell
The waiting game continues at Royal Dutch Shell () , a name that's been trading sideways for the last four months. Don't let the boring price action fool you, though. Longer-term, this setup has evolved into a bullish trade that you need to watch this week.
Shell is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance to the topside just above $86 and uptrending support below shares. As Shell bounces in between those two technically-significant price levels, it's getting squeezed closer to a breakout above resistance at $86. When that happens, we've finally got our buy signal.
Why all of that significance at that level? It all comes down to buyers and sellers. Price patterns like the ascending triangle are a good quick way to identify what's going on in the price action, but they're not the actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Shell's stock.
The $86 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $86 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. It makes sense to sit on the sidelines until the breakout is confirmed with a close materially above that $86 mark.
I hope you haven't owned shares of CA (CA) - Get Report in 2014. Since this stock peaked back in January, shares have sold off to the tune of 14% -- that means that this $13 billion IT stock has underperformed the S&P by a whopping 23% in the last seven months and change. But don't write off CA just yet; shares are starting to look "bottomy" in September.
CA is in the final stages of forming a rounding bottom pattern, a bullish setup that looks just like it sounds. The rounding bottom indicates a gradual shift in control of shares from sellers to buyers, and it triggers on a push through the stock's intermediate-term horizontal resistance range. For CA, that breakout level to watch is $29.50, a price that's within grabbing distance this week.
Wells Fargo (WFC) - Get Report looks primed for higher ground in September thanks to a classic technical setup that's been forming in shares for the last two months. Those last couple of months, incidentally, haven't been particularly good ones for WFC shareholders. While the S&P has broken out to new all time highs in the last couple of weeks, this big bank has failed to even test its high water mark. But previous highs are the wrong number for traders to fixate on right now. Instead, the money comes on a move above a nearer resistance level at $52.
That's because $52 is the neckline level for an inverse head and shoulders in Wells. In case you're not familiar with what seems to be everyone's go-to trading pattern, the inverse head and shoulders pattern is a bullish setup that indicates exhaustion among sellers. You can spot the inverse head and shoulders by looking for two swing lows that bottom out around the same level (the shoulders), separated by a bigger trough called the head; the buy signal comes on the breakout above the pattern’s “neckline” level (that's our $52 price level in WFC).
Momentum adds some extra confidence in WFC's upside potential right now: 14-day RSI has been making higher lows, even as its share price has consolidated below our $52 price level. That's a good indication that buyers have been getting more aggressive in this stock as we head deeper into September. Wait for the breakout before you buy.
-- Written by Jonas Elmerraji in Baltimore.
Follow Stockpickr on Twitter and become a fan on Facebook.
At the time of publication, author was long AAPL. Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji