Yesterday's 0.33% pop in the S&P 500 may not have seemed like a very significant trading day at a glance, but it was. Wednesday was a crucial day for the broad market because that 33-basis-point jump was enough to shove the S&P less than a percentage point away from new all-time intraday highs.
(On a closing basis, we're even closer than that -- just 12 points away heading into Thursday's session.)
After a pretty sideways month in May, stocks are beginning to build some momentum again in June. And that bullish turn for U.S. markets is playing out with breakouts in some of Wall Street's most well-known names.
To take advantage of that bullish shift, we're turning to the charts for a technical look at five large stocks that are showing bullish trades this week -- and when you should buy them.
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.
Leading off the list is telco giant AT&T (T) - Get AT&T Inc. Report . So far, AT&T has been giving shareholders a great year. Shares are up approximately 16% since the calendar flipped to January, leaving the rest of the broad market in its dust. Don't worry if you've missed the move in AT&T, though. Shares are pushing into "breakout mode" this week, pointing to a second leg higher in June.
AT&T spent the last couple of months forming a textbook ascending triangle pattern. The ascending triangle is formed by a horizontal resistance level up above shares (at $39.50 in AT&T's case), and uptrending support to the downside. Basically, as shares bounced between those two technically important price levels between April and June, this stock was getting squeezed closer and closer to a breakout. The buy signal finally triggered this week, when AT&T managed to catch a bid above the aforementioned $39.50 level.
Relative strength, which measures AT&T's price performance versus the rest of the stock market, is an extra indicator that adds confidence to an upside move from here. That's because AT&T's relative strength line is holding onto its uptrend since last fall, an indication that this big stock is still continuing to outperform the market. If you decide to buy here, support at the 50-day moving average looks like a logical place to park a protective stop.
We're seeing a similar price setup in shares of another big telco -- albeit one whose home base is a bit further away. Telefonica Brasil (VIV) - Get Telefonica Brasil S.A. American Depositary Shares (Each representing One) Report is forming an ascending triangle pattern of its own this month, and this $20 billion telco is teetering on the edge of breakout territory. For Telefonica Brasil, the key price level to watch is resistance up at $12.60.
What's so special about the $12.60 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle setup in Telefonica Brasil, are a good quick way to identify what's going on in the price action, but they're not the actual reason that makes the stock tradable. Instead, the "why" comes down to basic supply and demand for VIV's shares themselves.
The $12.60 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 been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $12.60 so significant - the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Once Telefonica Brasil manages to definitively move above $12.60, it's time to join the buyers.
China Life Insurance
No doubt about it, 2016 has been a terrible year for shares of $84 billion financial giant China Life Insurance (LFC) - Get China Life Insurance Company Limited American Depositary Shares Report . Since the calendar flipped to January, this big insurer has lost 30% of its market value - and that's on top of the selloff that started months earlier in 2015. But after a prolonged rout, this stock is starting to look "bottomy" in the long-term. Here's how to trade it.
China Life Insurance is currently forming a double bottom, a bullish reversal pattern 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 push through the peak that separates that pair of troughs. In China Life's case, that happens at the $12.50 price level.
Price momentum, measured by 14-day RSI up at the top of the chart, is the side-indicator to watch right now in shares of China Life. Our momentum gauge made higher lows corresponding with the stock's pair of price lows, a bullish divergence that signals buying pressure has been building. If LFC can break above $12.50, it becomes time to buy.
China Life isn't the only big U.S.-traded stock from the People's Republic that's making moves this summer. Another is national oil company PetroChina (PTR) - Get PetroChina Company Limited Report . PetroChina has been riding the energy sector rebound in 2016, up 12% from the start of the year; but this stock could have even further to run thanks to a price setup that's about as simple as they get.
Since January, PetroChina has been bouncing its way higher in a well defined uptrending channel, a setup formed by a pair of parallel trendlines that have corralled this stock's price action perfectly. So far, every test of the bottom of PetroChina's price channel has provided investors with a low-risk, high-reward opportunity to build a position in this stock. And as shares rally off of support for a fourth time now, it makes sense to jump on the bounce higher.
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, invalidating the upside trade). Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring PetroChina can actually still catch a bid along that line before you put your money on shares.
Our last chart brings us back stateside -- I'm talking about aerospace giant Boeing (BA) - Get The Boeing Company Report . Boeing has slid about 8% in 2016, but that negative price action masks a very positive trend that's been taking over in shares more recently. Since this stock found a bottom back in February, for instance, it's actually managed to rebound more than 22% off of its lows.
Now shares are consolidating sideways in a rectangle pattern. The rectangle gets its name because the pattern basically "boxes in" shares between horizontal support and resistance lines. For Boeing, the levels to watch are resistance up at $135 and support at $125. Rectangles are "if/then patterns" -- put a different way, if Boeing breaks out through resistance at $135, then traders have a buy signal. Otherwise, if this stock violates support at $125, then the high-probability trade is a sell.
Because Boeing's prior trend was up coming off of its February lows, this stock favors breaking out above $135. Still, it's important to be reactionary and wait for Boeing to exit the rectangle before you take sides on this trade. Technical analysis is a risk management tool, not a crystal ball, and this doesn't become a high-probability buy until our price ceiling gets taken out.
Disclosure: This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.