BALTIMORE ( Stockpickr) -- As stocks hover around all-time highs this week, you'd be forgiven for wondering, "What's next?"
After all, a new high-water mark for the stock market may look good for your existing portfolio, but it's hard to trade from here. And after a 10% rally in the S&P 500 in just the last three weeks, it's only normal to wonder how much further this momentum move can go. Despite the size of this big move, there are still some big breakout trade opportunities popping up this week.
So today, we'll take a technical look at five large-cap stocks to trade for gains…
First, a little on the technical toolbox we're using here: 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 big stocks to trade this week.
SPDR S&P 500 ETF
First up, some long-term technical context for the broad market rally that's propelled the big S&P 500 index more than 10% higher year-to-date. To find that, we're turning to the SPDR S&P 500 ETF (SPY) - Get Report , the best investible proxy for everyone's favorite big stock index. A quick glance at the three-year chart of SPY above tells you pretty much everything you need to know about this rally: put simply, we're still very much in a "buy the dips market".
SPY has been bouncing off of a long-term trendline that goes back to early 2011, catching a bid on every successive test of support. And while shares ratcheted higher in a tighter section of that uptrending channel during 2013 and most of 2014, that intermediate-term uptrend broke with the recent stock market correction, giving us our first test of the bottom of the long-term trend channel since 2012.
Put simply, a correction down to that bottom blue line was long overdue. And from here, it still makes sense to buy the dips. With SPY three-quarters of the way up its price channel, patience is a virtue in November -- it makes sense to wait for the next pullback before trying to build a position in anything that tracks the S&P.
But meanwhile, there are some individual names that look tradable this week.
DaVita HealthCare Partners
We're seeing the exact same setup in shares of dialysis service provider DaVita HealthCare Partners (DVA) - Get Report -- just in the shorter-term. Like SPY, DaVita has been bouncing its way higher in a well-defined uptrending channel, in this case since the start of 2014. Every test of trendline support has provided investors with a low-risk buying opportunity for shares of DVA, and shares are bouncing off of support for a fifth time this week.
If you're looking to build a position in DVA, it makes sense to wait and buy the next bounce…
Waiting for a bounce off of support is a critical test for two big 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 DVA can actually still catch a bid along that line before you put your money on shares.
Relative strength adds some confidence to that call. The relative strength line at the bottom of DaVita's chart has been in a textbook uptrend since the end of last year. As long as that uptrend remains intact, DVA should keep outperforming the rest of the market.
Another healthcare name that's looking very tradable this week is Bristol-Myers Squibb (BMY) - Get Report . BMY rallied hard off of the bottom of the mid-October correction, ratcheting about 20% higher from October 15 to today. But don't worry if you missed the move -- BMY looks ready to kick off another leg higher in the short-term.
BMY is currently forming an ascending triangle pattern, a bullish continuation pattern. The ascending triangle is formed by a horizontal resistance level above shares (in this case at $50), and uptrending support to the downside. Basically, as BMY bounces in between those two technically important levels, it's getting squeezed closer to a breakout above that $50 price ceiling. When that happens, we've got a buy signal in shares.
I mentioned that the pattern in BMY is very short-term in nature -- it's only been setting up for ten trading sessions, and it's already near completion. But ultimately, that's not much of a concern. The sheer size of the prior move higher plus the psychological significance of a breakout above the round-number $50 level means that the first close above $50 should come with not-so-short-term breakout potential.
Automaker General Motors (GM) - Get Report is another ascending triangle stock -- but with a big divergence from the one in BMY. While the Bristol-Myers setup is pretty textbook, coming after a move up, GM's ascending triangle is coming in at the bottom of a selloff. That may not be textbook, but the trading implications are exactly the same here: GM becomes a buy after a breakout above $32.
Why all of that significance at that $32 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 GM's stock.
The $32 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 $32 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Momentum, measured by 14-day RSI, adds some bullish context to the GM trade. Our momentum gauge has been in an uptrend even while shares of GM continued lower, an indication that buying pressure is starting to build. The buy signal doesn't come until $32 gets taken out.
National Grid ended the summer looking bearish, but after a pretty predictable correction, shares caught a bid at the 200-day moving average, and they've been moving higher ever since, forming a bullish technical setup.
NGG is in the early stages of forming an inverse head and shoulders setup, a bullish reversal pattern 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 the $75 price level in NGG).
Even though the right shoulder hasn't formed yet, any close above $75 from here is a buy signal in National Grid. That's because $75 has been the level that's swatted shares lower since the last week of July -- if NGG can suddenly catch a bid above $75, we've got our signal that buyers have taken control of this stock. When buyers make their move, it makes sense to join them…
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in the names mentioned.
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 that 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
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to
. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in
Investor's Business Daily
. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji.