BALTIMORE (Stockpickr) -- Yesterday's market action was decidedly bearish following a surprise rate hike from the People's Bank of China. The PBoC's decision wasn't the only factor weighing in on market direction, however. Earnings results and housing data also tempered yesterday's moves, though the both were predominantly positive -- which suggests that bears might have had an even bigger bite out of the market were it not for some halfway decent sentiment on Wall Street.
But even as fundamental data battled to control the market direction, technical analysis was pointing to a drop in stocks.
Right now, the
S&P 500 index
is sitting just below a past resistance level and looking overbought, two signs that we may be on the verge of some downside action in stocks. To make matters worse, that resistance coupled with overbought momentum is showing through on multiple timeframes, increasing the likelihood of a drop.
But just as technicals predicted a drop in stocks this week, those same skills are pointing out stocks that could be prepping for a profitable move. That's why we're focusing on three more technical setups this week to wring maximum upside out of the market.
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.
Here's a look at
Two words have summed up most of
trading this year: flat and volatile.
Indeed, while the insurance giant is currently within 2% of January's trading prices, the stock has made more than a few swings in the process. Now, though, shares could be prepping for a move higher.
Shares of Cigna broke above $35 resistance in early September, the first sign that a breakout could be on the horizon. Since then, shares have tested their newfound support level not once, but twice, a phenomenon that significantly limits traders' downside risk on this stock. With shares bouncing off of that support level, a third test this week could provide an attractive buying opportunity for a quick upside push.
The fact that Cigna is currently forming a bullish moving average crossover also helps matters. With the faster 50-day moving average crossing above the slower 200-day moving average, Cigna should have added upward pressure in its favor by the end of the week. If you decide to take the trade, place your protective stop right below the 50-day moving average at $34.
Like with Cigna, we're already in breakout territory with
, a $12 billion power utility with operations focused in the Mid-Atlantic.
During the last week of September, FirstEnergy's shares broke above resistance to trigger the ascending triangle pattern shares had been trapped in for the past few months. Since then, the stock has traded down to test support, then bounced higher quickly.
>>Who Owns FirstEnergy?:
The speed of last week's bounce is important because it reinforces FirstEnergy's reluctance to trade below $38.25 again. The company had no trouble trading to new short-term highs this week, giving us solid moves higher on Monday and Tuesday despite a lack of upside pressure in the broad market.
This stock is an attractive buy right now. That said, don't forget how other stocks are trading right now. If buyers become reluctant again, this rally could lose steam before it really gets started.
Finally this week, we're looking a downside play:
From a fundamental perspective, Boeing looks intriguing right now. With the 787 Dreamliner finally coming closer to fruition, new lucrative defense contracts, and an enviable backlog, Boeing appears to have a lot in its favor. But nevertheless, its hard to argue against the technical outlook right now.
Boeing bounced off of resistance at $72 late last week, sending shares sinking in yesterday's trading. With support below, at the convergence of the 50- and 200-day moving averages, this stock does have a cushion to fall onto, but its well below current levels. I'd expect shares to reach just short of $65 before turning around to the upside again. Traders should watch Boeing closely to be sure that today's earnings buying doesn't derail this trade.
If you're after a short-side trade on this aeronautical firm, place a protective stop above $72 in case of a restest of resistance.
>>Who Owns Boeing?:
To see these plays 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.