November trading is kicking off with a less than auspicious start: the S&P 500 gave back almost 2% of its value in October, following a pair of virtually flat months in August and September. In short, it hasn't been the best three-month stretch to be a stock market investor.
That's the bad news.
The good news is that the tide could finally be turning - November is typically a bullish month for stocks, and that's particularly true during months where the lead-up was flat or negative. In fact, studies show that November has historically kicked off the strongest stretch of market performance since 1950, with the S&P generating the majority of its annual returns during the November through April timeframe.
So, with seasonality finally putting the wind at investors' backs, it makes sense to stack the deck in your favor by loading up on stocks that are teetering on the edge of breakout territory right now. To find them, we're turning to the charts for a technical look at five stocks that are showing off attractive breakout setups.
In case you're unfamiliar with technical analysis, here's the executive summary: technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, here's a rundown of five technical setups that are showing solid upside potential right now...
InterXion Holding NV
Leading off our list of potential breakout movers is $2.7 billion European datacenter services operator InterXion Holding NV (INXN) - Get Report. This stock has been a leader since the start of 2016, rallying more than 23% since the calendar flipped to January. But don't worry if you've missed that upside move so far - InterXion is on the verge of a breakout that could kick off a second leg higher this fall...
InterXion is currently forming a textbook example of an ascending triangle setup. The ascending triangle is a bullish continuation pattern that's formed by horizontal resistance up above shares at $39, and uptrending support to the downside. Basically, as this stock bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout through that $39 price ceiling. When that happens, we've got a buy signal.
Relative strength, the indicator down at the bottom of InterXion's price chart, is the additional piece of evidence for the breakout that investors should be paying attention to here. Our relative strength line, with measures this stock's outperformance versus the rest of the broad market, has been in a well-defined uptrend all year long - as long as that uptrend in relative strength remains intact, this stock is predisposed to keep on outperforming.
Wait for shares to catch a bid above $39 before you pull the trigger on this trade...
We're seeing the exact same price setup shaping up in shares of $2.6 billion industrial Terex Corp. (TEX) - Get Report. Like InterXion, Terex has been forming a classic ascending triangle pattern, which signals a continuation of the 23% rally that's been in force since shares bottomed back at the end of June. For Terex, the breakout level to watch is resistance up at $25.50.
What makes that $25.50 level so significant for Terex? It all boils down to buyers and sellers. Price patterns, like this ascending triangle setup in Terex, 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 TEX's shares themselves.
The $25.50 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 $25.50 so significant - the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Things haven't looked so hot lately for shares of Brazilian aircraft maker Embraer SA (ERJ) - Get Report. Since the start of the year, this $4 billion aerospace stock has seen its market value plummet by almost 28% -- but long suffering shareholders could be in store for a reprieve here. That's because Embraer finally pushed its way into breakout territory in yesterday's session.
Since August, Embraer has been forming a double bottom, a bullish reversal setup that looks just like it sounds. The double bottom is formed by a pair of swing lows that bottom out at approximately the same price level - they're separated by a peak that marks the breakout level for the pattern. In Embraer's case, that breakout price tag came in at the $20 resistance level, a price that finally got materially exceeded in yesterday's earnings-fueled up-move.
From here, Embraer's high-probability trade it higher ground ahead. If you decide to pull the trigger on this week's breakout, it makes sense to park a protective stop on the other side of the bottom of Embraer's price pattern down at $17. If that $17 level gets broken, then the breakout is finished, and you don't want to own this stock anymore.
There isn't a whole lot of overlap between building jets and building jeans, nevertheless, we're seeing the exact same price setup in shares of clothing retailer Lands' End (LE) - Get Report. Like Embraer, Lands' End has been forming a double bottom of its own - the big difference here is that the breakout in Lands' End hasn't actually happened yet. The breakout level to watch for this stock is resistance up at $19.
Momentum, measured by the 14-day RSI up at the top of Lands' End's chart, adds some extra evidence to a bullish reversal here. Our momentum gauge made a pair of higher lows as this stock's price was bottoming, a bullish divergence that indicates buying pressure is actually building behind the scenes. So, once Lands' End trades above $19, it becomes a buy.
It's important to be reactionary if you're looking to trade Lands' End, or any of the other breakout trades on our list. That's because technical analysis is a risk management tool, not a crystal ball - and upside in LE doesn't become a high-probability outcome until buyers are able to muster the strength to push this stock above its $19 price ceiling. Keep a close eye on how this stock trades in the coming weeks...
Last up on our list of bullish technical setups is $16 billion biopharma stock Incyte Corp. (INCY) - Get Report. You don't need to be an expert technical trader to figure out what's been going on in shares of this big biotech - instead, the price action in this stock is about as simple as it gets. Incyte has been bouncing its way higher in an uptrend for the majority of 2016, and shares are showing off another buying opportunity this fall.
The price pattern in play in Incyte is an uptrending channel. The uptrend is formed by a pair of parallel trendlines that have identified the high-probability range for shares of Incyte to remain stock within. Every single test of the bottom of that price channel so far has provided investors with a low-risk, high-reward buying opportunity for shares of INCY. So, as this stock touches trendline support for the seventh time since February, it makes sense to buy the next bounce higher.
Actually waiting for that bounce is important for two key reasons: it's the spot where shares have the most room 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 the channel breaks, invalidating the upside trade). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Incyte Corp. can actually still catch a bid along that line before you put your money on shares.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.