3 Technical Setups for the Week

BALTIMORE (Stockpickr) -- The push higher continued on Monday, as broad market indices averaged gains of around 55 basis points by the market's close. Those gains come at a critical time for stocks, with the S&P 500 sitting just above a key support level to end last week.

Now that the index is putting some space between itself and its near-term price floor at 1,300, it looks like we could be facing a furtherance of the broad-based rally that's already sent stocks up double digits in the past six months.

With February off to a strong start, let's turn to three promising new technical setups that could trigger trading this month.

Related: Breakout Stocks: Sirius, Fortress, Energy XXI

Remember, 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.

Ultrapar Participacoes

For Brazilian fuel distributor Ultrapar Participacoes ( UGP), the last year has been a strong one for shareholders. All told, shares of the company have rallied 40% in the trailing 12 months, current 2.35% dividend yield excluded. But while UGP is hitting its head on resistance right now, there appears to be some near-term upside in shares.

Shares of UGP initially hit $66 resistance back in October 2010. Since then, they've managed to hit that level two other times, bouncing back to support just below $60 each time. But it's that predictable support and resistance channel that sets UGP up as a high-probability technical setup this week. Now that the stock has bounced down to support, this could be a strong buy on a bounce.

If you're considering taking this trade, wait for the first white bar before going long. This trade doesn't make sense until support gets confirmed once again at $59 and change. When the bounce does happen, consider a protective stop just below support. That keeps your risk to less than 2%, while the $66 price target suggests 10% upside in the next month.

Companhia Paranaense de Energia

Another Brazilian setup that's worth looking at right now is Companhia Paranaense de Energia ( ELP), a $7 billion energy stock that owns 18 power plants and nearly 2,000 kilometers of power transmission lines. As with UGP, this stock is setting up a predictable range trade.

Shares of ELP have been trading within an uptrending channel since the beginning of last summer, as shares cycled between trend line resistance at the upside, and trend line support below. Right now, with shares at trend line support, this week could be an ideal entry point for the play given the likelihood of a bounce back to resistance.

With the 50-day moving average sitting right below shares, there's a sort of dual support level in play that significantly reduces the risk of a botched trade -- the 50-day has already acted as strong support in the past for this stock. That said, I'd suggest keeping a stop loss around $24.50.

Scotts Miracle-Gro

Turning stateside, we have Scotts Miracle-Gro ( SMG). Following another strong rally that sent shares of Scotts up more than 15% in the last six months, this stock hit its head on $54 resistance and reversed down to support at $49. But sitting at that support level didn't last for long, and soon shares were retesting resistance once again.

Now, with a sort of bizarre cup and handle forming in shares of Scotts, traders will want to watch for this third test of resistance.

A few factors bode well for a new test of resistance in Scotts. First is the series of higher lows that form the "handle" in shares. Then there's the added support at the 50-day moving average, presently around $51. Even so, I wouldn't suggest going long until shares actually sustain a break above $54. Until then, Scotts could just as easily fail at resistance for a third time.

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 stocks 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 MSNBC.com.

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