5 Big Blue-Chip Stocks to Buy for Breakout Gains

The retail sector may have dragged the S&P 500 down nearly 1% yesterday, but that doesn't change Mr. Market's trajectory this May. As I write, the S&P is still a mere 3.4% shy of all-time highs, a position that would have been unthinkable earlier this year when stocks were correcting hard and buyers were nowhere to be found.

More important, that 3.4% number doesn't tell the whole story about what's happening in the individual stocks right now. You see, while the big market averages hover just below highs, a very large chunk of the individual stocks that make up those averages are shoving their way through important price levels. For example, year-to-date, a whopping 31% of S&P 500 components are up 10% or more.

Just owning "the right stocks" right now is the key to materially outperforming the rest of the market. To find the next batch of outperformers, we're turning to the charts for a look at five blue chip stocks that are entering breakout mode in May.

First, a quick note on the technical toolbox we're using here: Technical analysis is 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.

Boeing

Boeing (BA) - Get Report  may have started off the year with a stumble, but shares have been quickly making up for lost time since this big aerospace stock bottomed in the middle of February. In that stretch, Boeing has rebounded nearly 23%, logging double the upside of the rest of the S&P 500. And the good news for Boeing bulls is that this stock could be about to head even higher in May.

Boeing is currently forming an ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares (at $135 in this case), and uptrending support to the downside. Basically, as Boeing bounces in between those two technically important price levels, it's been getting squeezed closer and closer to a breakout through that $135 price ceiling. When the breakout happens, we've got our buy signal.

Relative strength, which measures Boeing's price performance versus the rest of the stock market, is an extra indicator to keep an eye on here. That's because Boeing's relative strength line is holding onto an uptrend since shares bottomed in February, an indication that this big aerospace stock is continuing to outperform this spring.

As long as that relative strength uptrend remains intact, expect to see continued outperformance from Boeing.

British American Tobacco

British American Tobacco (BTI) - Get Report  is another textbook ascending triangle setup to put on your radar this week. This $115 billion tobacco giant has been forming its price setup since the middle of April, bumping up against resistance three times now in the past five weeks. For British American Tobacco, the key breakout level to watch is $24.

What's so special about the $24 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in British American Tobacco, 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 British American Tobacco's shares themselves.

The $24 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 $24 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. When shares are able to sustain a bid above $24, then it's time to join the buyers in British American Tobacco.

Comcast

The price action has been pretty one-sided in shares of $153 billion media company Comcast (CMCSA) - Get Report  -- shares have rallied nearly 11% on a total returns basis since the beginning of 2016, outperforming the rest of the market by a big margin. And while Comcast's price action appears to have slowed down since April, shares are actually within grabbing distance of a big breakout level this week…

Comcast has spent the last few weeks forming a rounding bottom pattern, a price setup that looks just like it sounds. The rounding bottom in Comcast indicates a gradual shift in control of shares from sellers to buyers -- and it gave this stock the opportunity to bleed off some overbought momentum before shares attempted to re-take the 52-week highs made last fall. The key breakout level to watch in Comcast right now is resistance up at $63.

It's worth noting that the price action in Comcast right now isn't exactly textbook. Typically, the rounding bottom is a reversal pattern that shows up at the bottom of a downtrend, not the top of an uptrend. But even though Comcast's price setup isn't textbook, it's still very tradable right now. If $63 gets taken out, it's time to join the buyers.

BHP Billiton

So far, 2016 has been a pretty straightforward year in $70 billion mining giant BHP Billiton (BHP) - Get Report . Ss commodity prices have rebounded this year, BHP Billiton has been one of the big beneficiaries of the change in trend. That new trend is exactly what BHP investors should be paying attention to right now. As shares bounce their way higher in a well-defined uptrending channel, BHP Billiton is a "buy-the-dips stock."

BHP Billiton's uptrend is formed by a pair of parallel trend lines that have corralled this stock's price action going all the way back to January. Put another way, every test of the bottom of BHP's price channel has given buyers a low-risk, high-reward opportunity to scale into their positions - and BHP is testing trend line support for a sixth time this week. From here, it makes sense to buy the next bounce higher in this big miner.

Actually waiting for a 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 a bounce to happen first, you're ensuring BHP Billiton can actually still catch a bid along that line before you put your money on shares.

Alexion Pharmaceuticals

One industry that's taken things pretty hard this year has been pharmaceuticals -- and biotech in particular. $31 billion biopharma firm Alexion Pharmaceuticals (ALXN) - Get Report  has been no exception to that rule; since the calendar flipped to January, this big drug maker has seen its share price stumble more than 27%. But that selloff is showing signs of a turnaround this spring. Here's how to trade it.

Alexion Pharma is currently forming an inverse head and shoulders pattern, a bullish reversal setup that indicates exhaustion among sellers. After the selloff this stock has seen year-to-date, it's not hard to see why sellers are finally getting winded. You can spot the pattern 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". For Alexion, that neckline breakout level is currently up at $160.

Momentum, measured by 14-day RSI up at the top of the chart, is the side-indicator to be watching for the Alexion trade. Our momentum gauge has been making higher lows over the course of this stock's reversal pattern, an indication that buyers have been quietly building in shares since January. Wait for Alexion to clear $160 before trying to be a buyer. fFrom there, the 50-day moving average becomes a logical place to park a protective stop.

Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.