Your best buying opportunity this Black Friday might not be found in the middle of the department store melee, or even racing to snatch some fleeting bargain-priced inventory online.
Instead, your best purchase this week might actually be in the handful of big-name stocks that are flirting with breakouts this week.
We're officially in the final stretch of 2015. December trading kicks off next week, and the big stock market indices are keeping things interesting all the way down to the wire -- for instance, while the big S&P 500 index is only up 1.46% since January, the S&P is only 2% shy of hitting all-time highs right now. New highs in the market averages could spell serious rallies in some of the individual stocks that are setting up strong price action to finish 2015.
So, to find the trades that look the strongest right now, we're turning to the charts for a technical look.
First, a little 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.
Brookfield Infrastructure Partners
Up first on the list is Brookfield Infrastructure Partners (BIP) - Get Brookfield Infrastructure Partners LP Limited Partnership Units Report , the $7-billion utility operator. Brookfield's year has been a mixed-bag in 2015, with shares spending most of the year sideways. But zoom in to the last few months and things start to look a whole lot more directional for Brookfield Infrastructure. Here's how to trade it.
Brookfield Infrastructure is currently forming an ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares at $42, and uptrending support to the downside. Basically, as Brookfield Infrastructure bounces in between those two technically important levels, it's been getting squeezed closer and closer to a breakout through our $42 price ceiling. Once that breakout happens, we've got the signal that it's time to be a buyer.
Relative strength (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in Brookfield Infrastructure right now. That's because this stock's relative strength line is holding its uptrend from the start of the year, indicating that shares are continuing to beat the rest of the market long-term even now. Keep a close eye on Brookfield Infrastructure here -- shares are within striking distance of $42.
Good news: You don't need to be an expert technical trader in order to figure out the buying opportunity in shares of Viacom (VIAB) - Get Viacom Inc. Class B Report . Instead, the price action in this entertainment stock is about as straightforward as it gets. Viacom has been a "buy the dips" stock since the end of August, and shares are showing traders another buyable dips this week.
After spending the first half of 2015 selling off, Viacom made an about-face at the end of August, and it's been making its way higher in a well-defined uptrending channel ever since then. The uptrend in Viacom is formed by a pair of parallel trendlines that mark the high probability range for shares to stay stuck within. For that reason, every test of the bottom of that price channel has provided traders with a low-risk, high-reward buying opportunity – and it makes sense to buy the next bounce off of that lower bound.
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, and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring Viacom can actually still catch a bid along that line before you put your money on shares.
No doubt about it, $31 billion fast food chain Yum! Brands (YUM) - Get Yum! Brands Inc. Report has been experiencing a rough few months. Shares peaked back in May, and they sold off more than 23% of their value since then, underperforming the S&P 500 by a huge margin. But long-suffering shareholders could be in a reprieve in Yum Brands this fall thanks to a classic reversal pattern that's been forming in shares.
Yum! Brands is currently forming a double-bottom pattern, 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 -- the buy signal comes on a breakout through the peak that separates those two troughs. For Yum Brands, that breakout level to watch is resistance up at $75.
Momentum, measured by the 14-day RSI, adds some extra confirmation to upside in Yum Brands right now. Our momentum gauge made higher lows on each of the price bottoms on Yum!'s chart, creating a bullish divergence. Shares are within grabbing distance of our $75 price level today -- keep a close eye on this one.
Merck & Co.
$150-billion pharmaceutical firm Merck & Co. (MRK) - Get Merck & Company Inc. Report is showing traders a bullish reversal of a different sort this fall. It's not that Merck has had a horrible year -- shares are down year-to-date, but only by 5.4%. Instead, a sideways grind has left shareholders frustrated in 2015. But patience could pay off in the near-term here.
That's because Merck is currently forming an inverse head-and-shoulders pattern, a classic reversal setup that signals exhaustion among sellers. You can spot the inverse head and shoulders 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 came on the breakout above the pattern's "neckline." That's the $56 level in Merck.
Merck is another stock where momentum is signaling upside. 14-day RSI has made higher lows on each of the swing lows in Merck's price pattern -- that's an indication that buying pressure has been quietly building beneath the surface in this stock. Once the $56 breakout happens, the 50-day moving average is a logical place to park a protective stop.
We're seeing the exact same setup in shares of another healthcare stock: $7-billion medical device maker Cooper Companies (COO) - Get The Cooper Companies Inc. Report . Like Merck, Cooper is currently forming an inverse head-and-shoulders pattern, in this case with a neckline at $155. A breakout through that $155 price level is our big buy signal for this stock.
Why all of that significance at the $155 level? It all comes down to buyers and sellers. Price patterns, like this inverse head and shoulders setup in Cooper Companies, 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 Cooper's stock.
The $155 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 $155 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. It's important to be reactionary here and wait for the $155 breakout; Cooper doesn't become a high-probability buy until shares can catch a bid above that level.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author had no positions in the stocks mentioned.