BALTIMORE (Stockpickr) -- It continues to be more of the same for May, with Europe and economic data still the key forces affecting the market right now. But while the same fundamental items are at play this week, how they're affecting the market has changed. One of the best ways to see this is by looking at how Wall Street's biggest-name stocks are trading. After all, it's the biggest, highest-volume stocks that lead the market when things get volatile.
With that in mind, let's take a look at how those big name stocks are trading technically.
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.
at how some of the biggest names on Wall Street are trading technically.
Electronic payment network
fell hard earlier this month following news that congress was considering legislation that would cap the interchange fees that it and other card processors collect through debit-card transactions. With an increasing focus on debit-card products in recent years, that sort of legislation could take a significant bite out of Visa's revenues. But whatever happens on Capitol Hill, a potential turnaround in this stock should have you taking interest this week.
From Visa's 52-week high of $97.19 at the end of April to its $72.97 close yesterday, shares of the company have tumbled 24.9% in less than a month. Whether or not the selloff was justified, that swift downward placed Visa firmly in oversold territory from a momentum basis. Likewise, the colossal gap-down the stock saw earlier this month lacked the fundamental support for Visa to continue to trade lower much longer; instead, it was catalyzed by May's "Crash of 2:45 p.m." bear run.
Right now, shares of Visa are finding support around $70 following a bounce higher in yesterday's trading session. That bodes well for shares in the short term. Consider going long on the next positive open -- but keep a tight trailing stop on this one.
One of Visa's biggest card issuers is
, the $110 billion banking stock that reported earnings of $4.4 billion at the end of April. Citigroup is one of the biggest stocks on the NYSE, and it continues to have one of the largest trading volumes on Wall Street. But investors would do well to take notice of the head-and-shoulders top that's threatening to push this megastock lower in the short term.
A head-and-shoulders pattern is a bearish signal that suggests that shares are about to make a downward move. The trigger for the head and shoulders is a breach of the "shoulder level" (see above), something that's already taken place in Citi. While Citi's pattern is nothing to write home about -- it's a little on the "sloppy" side) -- the stock has been incredibly obedient to technical indicators in the past, and with the slide that shares have seen since falling below shoulder level, this pattern looks like it'll play out too.
If you're considering betting against Citi, be cautious. Because of its size and popularity with traders, this stock is prone to move based on small news events. Keep your stop at $4 per share.
, the Brazilian iron ore producer, has been headed lower for a while now, but its fall has been largely fundamentals-driven as the company halts production amid a significant drop in demand for its products. This week, with Vale's stock tumbling through support at the 200-day moving average, it looks like this company could have further to fall.
Moving averages, which chart out a stock's average price over a trailing period of days, are an important technical indicator to watch. Not only do they act as natural support and resistance levels (as in the case of Vale), but they are also frequently used by program trading applications, meaning that a breach of a support or resistance level can trigger serious buying and selling by firms' computer programs.
Who Owns Vale?
By falling through support, Vale confirmed to investors that it lacks any sort of buying pressure right now. The company's next halfway significant support level sits at $24. If it can make it through that level by today's close as well, you can expect a pretty direct fall to the next level at around $22. That makes Vale a strong candidate for a short-term short play in the next week.
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.