Technical Setups: Morgan Stanley, Lockheed

BALTIMORE (Stockpickr) -- 2010 is looking to end on a strong note, following another day of relatively flat market action overall.

Wait. How does a flat trading day spell potential gains as we approach year-end?

Even though the S&P 500 gained a paltry 3.17 points yesterday, as far as I'm concerned, the key to yesterday's market action was the fact that stocks held above support and bled off more of their overbought momentum. Those two attributes will be key as major indexes lay a foundation for further gains in 2011.

Economic data is always an important factor, but market fundamentals are less important right now. Ultimately, the market's driven by supply and demand, and investor sentiment is going to be the main driver of price action in the next few weeks. Now, as investors surmount their anxieties over the rebound that stocks have enjoyed since 2009's lows, the bulls could have an opportunity for another rally leg in the first quarter of 2011.

Let's hope for another quiet week for Wall Street in the mean time.

Related Article: 4 Stocks Poised for Breakouts

That's not to say, of course, that there won't be more immediate opportunities for technical-analysis-driven gains. As always, this week we're taking a look at three more promising technical setups.

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 this week's potential trades.

Lockheed Martin

Defense contracting behemoth Lockheed Martin ( LMT) has had a relatively disappointing year, following a nearly 8% drop in 2010. The S&P 500 has gained 11.83% over that same period. And price action could be skewed more toward the short side this week thanks to the downtrending channel that Lockheed continues to trade in.

Lockheed has been stuck in a downtrending trading channel for the last several months, a pricing phenomenon that's kept shares relegated to the parallel blue support and resistance range in the chart above. With shares of Lockheed Martin getting close to resistance right now, a bounce lower could provide the perfect opportunity for a short-side trade on this stock.

Resistance is pretty clearly set at just below $71 right now, which should give traders an easy-to-spot upside risk. I'd suggest placing a stop just above that level to prevent mounting losses if this trade fails to play out. If you do decide to bet against shares, increase the probability of a successful trade by waiting for a bounce lower to occur first.

Among those making bets on Lockheed Martin are Renaissance Technologies, which increased its position by 1,617.5% in the most recent reporting period; Chase Coleman at Tiger Global Management, for whom Lockheed makes up 2.8% of his total portfolio; and the Vice Fund. Recently, ranked Lockheed as one of the 10 best stock by dividend yield.

J&J Snack Foods

Small-cap snack food maker J&J Snack Foods ( JJSF) is the company behind a handful of recognizable brand names in your grocer's freezer. But while the company's product offerings are cold, shares of this Pennsauken, N.J.-based firm have been on fire in the last few months, rallying more than 30% since late-August lows. With a retest of a key resistance level this week, higher prices could yet be ahead.

Shares of J&J formed a bullish inverse head-and-shoulders pattern between July and November, a pattern that broke out to the upside at the end of last month when shares finally pushed above shoulder level at $44. Shares slammed into a strong psychological resistance level at $50 at the beginning of this month, and backed down, only to retry their luck again this week.

$50 isn't just a big psychological barrier for JJSF -- it's also the stock's 52-week high thanks to the latest attempt. That means that shares could really move if they're able to crack that level. Long-side investors should wait for a sustained move above $50 before going long. If the next test fails, this double-top could be an attractive short candidate.

J&J recently increased its dividend payout by 9.3%, and with a buy rating from TheStreet Ratings, the stock makes it onto the Top-Rated Food Product Stocks list.

Morgan Stanley

While Morgan Stanley ( MS) has battled many of the same challenges that have been endemic to the financial services sector this year, the stock is finally showing some signs of a potential upside move. Here's what to watch for:

Morgan Stanley is starting to form a bullish ascending triangle pattern right now, a setup that's predicated on a staunch resistance level and higher lows. In Morgan Stanley's case, that $28 resistance level is the one to watch for. If shares can break above that level, the likelihood of a sustained move higher is vastly improved.

I wouldn't recommend going long until it happens. While you'll risk missing out on some of the price movement, you'll also greatly improve the chances of booking a successful trade by waiting for confirmation.

Morgan Stanley comprises 8% of Bruce Berkowitz's portfolio at Fairholme Capital Management as of the latest reporting period and is also owned by Richard Pzena at Pzena Investment Management. Last month, the stock was included in Eric Rosenbaum's list of the top 10 S&P 500 insider sales of the year.

To see these plays in action, check out the Technical Setups for the Week portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stock 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

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