At a glance, it might seem like November 2015 is off to a tepid start for stocks. Since the calendar flipped over, the big S&P 500 index has lost about 0.4%, creeping back to within 1% of going negative on the year.
But what you might not realize is that, while the market averages grind sideways, a subset of individual stocks is in rally mode. So far, almost 20% of the S&P is up 4% or better in the first two weeks of November -- and focusing in on the stocks best-positioned to outperform in the second half of the month could help you grab onto some sizable gains while the rest of the market does a whole lot of nothing.
To find the stocks that look positioned for breakout moves here, we're turning to the charts for a technical look at five big stocks showing bullish setups.
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.
Up first is $110 billion healthcare giant UnitedHealth Group (UNH) - Get Report . UnitedHealth has been a good example of an outperformer this year, up more than 13% since the beginning of 2015. Don't worry if you missed that move in UnitedHealth, though, because shares look likely to kick off a second leg higher from there.
That's because UnitedHealth Group is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares and uptrending support to the downside. Basically, as UnitedHealth bounces between those two technically significant price levels, shares have been getting squeezed closer and closer to a breakout above that $125 resistance level. A push through $125 is our buy signal in this big stock.
Why all of that significance at the $125 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle setup in UnitedHealth, 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 UnitedHealth's stock.
The $125 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 $125 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 $125 breakout. This stock doesn't become a high-probability buy until shares can catch a bid above that level.
With the setup in UnitedHealth in mind, it makes sense to take a second look at Northern Trust (NTRS) - Get Report , an ascending triangle setup that we also looked at last week. Northern Trust is showing traders the same setup that we looked in UnitedHealth. The big difference here is that the breakout has already happened.
Since we last looked at Northern Trust, shares managed to hold a move above $72, triggering a buy. This stock springboarded higher after that initial breakout, making its way about halfway up to prior highs up at $78. That $78 price ceiling is the next potential stumbling point for Northern Trust buyers to tackle on the way up from here.
For late-to-the-game buyers, it's not too late to get into Northern Trust at this point, taking on a starter position in advance of a test of $78. Risk management is key if you decide to take that trade, though. Risk-averse traders should park a protective stop on the other side of newfound support at $72.
It's been a rough year to own shares of mid-cap power generation company Calpine (CPN) . Since January, this firm has shed more than a third of its market value. But long-suffering shareholders could be in store for a reprieve this fall thanks to a classic reversal setup that's been forming in Calpine for the last two months.
Calpine is currently forming a double bottom, a bullish reversal pattern that looks just like it sounds. The pattern is formed by a pair of swing lows that bottom out at approximately the same price level, and it triggers when shares break out above the peak that separates those two troughs. For Calpine, that breakout level to watch is $16.50 resistance.
Momentum, measured by 14-day RSI, adds some extra confirmation to upside in Calpine right now. Our momentum gauge made a pair of higher lows during the pair of price bottoms in Calpine, creating a bullish divergence. If $16.50 gets taken out, then this electric utility is a buy.
China Life Insurance Company
$123 billion insurer China Life Insurance Company (LFC) - Get Report is another big stock that's showing traders a deceptively simple price setup this fall. China Life spent the middle of 2015 selling off, batted more than 36% lower from its peak this sprint to its trough at the end of August. But that trend has come to an end, and now, a new uptrend looks buyable in China Life.
China Life's trend is still very new, but it's been holding up well for the past four tests of trendline support. Each of those tests of the bottom of that channel has provided a very attractive buying opportunity from a risk/reward standpoint. And we're getting another potentially buyable bounce as shares test support this week. From here, it makes sense to buy the bounce.
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 China Life can actually still catch a bid along that line before you put your money on shares.
Because of the newness of China Life's uptrend, it's a very good idea to park a protective stop on the other side of $17 support. If that level gets busted, then the uptrend is over, and you don't want to own this stock any more.
Finally, we're seeing another big textbook trade in shares of Honeywell (HON) - Get Report . Back in August, Honeywell began forming an inverse head and shoulders setup, a bullish reversal pattern that indicates exhaustion among sellers. The setup in Honeywell isn't exactly textbook -- reversals like this one typically come at the end of a downtrend, not after a long sideways grind -- but the trading implications are exactly the same here.
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 was the $102 level in shares of Honeywell, and it triggered a buy back in October. This week, though, a throwback is giving traders a second chance at a low-risk entry in Honeywell.
A throwback happens when a stock moves back down to test newfound support at its former breakout level -- in this case at $102. And while throwbacks look ominous, they’re actually constructive for stock prices because they re-verify the stock’s ability to catch a bid at support. That makes yesterday's bounce off of $102 look pretty buyable here.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.