BALTIMORE (Stockpickr) -- With Monday gains reigned in by resistance, stocks are following the technicals to open this week. That's a fact that has traders excited for this final full week of February -- after all, when the broad market's being obedient to key technicals, the probability for entering profitable trades jumps dramatically.
That's why once again we're after stocks that are on the verge of a technical breakout this week.
Technical analysis is a way for investors to quantify qualitative factors such as investor psychology based on a stock's chart patterns 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.
But all too often, investors don't know where to start. So every week, Stockpickr takes a look at stocks that could be staging a technical move soon and compiles a portfolio of promising
Here's a look at this week's stocks.
Mead Johnson Nutrition
is thriving in 2010, with shares already up 7.41% while the market's languished in the red. But a technical ascending triangle pattern forming in the stock could mean that shares are due to see higher ground in the coming week.
Mead Johnson looks good from a fundamental perspective too. The company, which focuses on the pediatric nutrition market, has been a force to be reckoned within that niche for close to 40 years. Now, with shares flying under their own flag, investors have gotten the chance to invest in Mead Johnson sans parental distraction.
Starting back in early October, the stock began forming an ascending triangle pattern, a bullish technical pattern characterized by a horizontal resistance level and higher lows. Shares have been sticking especially close to that resistance level of late, suggesting that a breakout above that level could be imminent. Wait for a close above the horizontal blue line before thinking about going long shares of MJN.
Annaly Capital Management
is an interesting firm. The company, which is structured as a real estate investment trust, makes its money by borrowing money at low rates and investing it in higher-yielding securities to profit from the spread. One of the key investments in Annaly's portfolio has been mortgage-backed securities, a hotly debated instrument following the real estate meltdown of 2008.
But with much of the risks of MBS (and other similar instruments) worked out, or at least better understood, at this point, the company's once-severely-low share prices have managed to work their way higher. Shares have gained 24% in the last year, and they should continue to do well, especially now that the stock's seeing an ascending triangle pattern like Mead Johnson's.
The two stocks' patterns may be the same, but Annaly's has been forming for quite some time, which suggests that it's a much stronger pattern for traders to take advantage of. Wait for a sustained close above the horizontal resistance level before considering going long this stock.
Going for a more speculative trade is
China Digital TV Holding
, a company that provides conditional access systems, such as set-top boxes, to consumers in China. As with the U.S., the Chinese government has been making a push for an analog-to-digital transition in recent years, and STV is one of the companies that's primed to benefit from the change.
Shares of STV are up nearly 20% already in 2010, if only for the fact that they slammed in to a double-bottom earlier this month ahead of first-quarter earnings. Although the company's quarterly numbers left a bit to be desired, they proved to be strong enough to justify the ascent shares have taken in 2010 -- and could continue to be as the stock sits on the verge of a technical breakout.
Right now China Digital TV faces staunch resistance right around $7.42 - a break above that area could mean fast gains for shareholders. The risk for that trade is limited right now. With strong support at the $6 mark, traders can be relatively confident about a bounce up off that level if the trade falls apart. Still, don't consider going long until two consecutive closes above resistance.
To see these plays in action, check out the
-- Written by Jonas Elmerraji in Baltimore.
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