5 Technical Setups to Trade This Week

BALTIMORE (Stockpickr) -- Last week's strong performance in stocks is being followed up by more of the same to kick start this week.

Since last Monday, the S&P 500 has generated returns of 7.7% -- that's a massive string of wins considering the selling pressures that stocks have been under in August. Those swings indicate that volatility is still a significant factor to contend with right now. So are high correlations between the broad market and individual stocks.

The CBOE S&P 500 Implied Correlation Index hit record levels earlier this month, which means that most stocks are trading in lockstep with the Mr. Market. Normally, that's a bad thing; it means that few contra-market trades are showing up out there. Now, with the S&P 500 breaking out above the technically significant 1,200 level, it might not be such a bad thing.

This week, with bullish signs in stocks, we'll take a look at five technical setups that could provide breakout gains right now.

Related: 5 Set to Fall on Earnings This Week

Remember, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action 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 setups.

Fluor Corp.

Shares of Fluor Corp. ( FLR) haven't been spared from this summer's selloff -- in fact, shares of the $10 billion engineering firm have slid more than 10% on the year because of it. But this stock could be one of the best positioned to bounce back thanks to a bullish setup that's currently setting up in shares.

Like most other S&P constituents, Fluor's correlation with the index is incredibly high right now. But there is one major difference between the broad market and this stock's chart right now: higher lows from its Aug. 8 bottom. While the S&P retested its lows later in the month, Fluor didn't; that fact indicates significant strength among buyers right now.

The name for Fluor's price action is an ascending triangle. It's identified by a horizontal resistance level and the higher lows that I mentioned a minute ago. The "buy" signal comes in when Fluor's able to push above that overhead resistance level, currently at $60. If you decide to take this trade, consider a protective stop just below the lower blue uptrend line.

Fluor appears on the Stockpickr portfolio Top-Rated Construction & Engineering Stocks.

Enersis SA

Almost the exact same setup is taking place right now in shares of Enersis SA ( ENI), a $13 billion South American electric utility. While shares of ENI had shown some bullish indications earlier this summer, traders got the exit signal when the stock broke below trendline support on July 27. The resulting selloff was sharp, but a correction higher could be just as sharp right now.

As with Fluor, higher lows are the key differentiator between ENI's price action and that of the S&P 500. Resistance is currently right above $20 -- that's the price that we'll want to see get exceeded before it makes sense to be a buyer in this name. Because of the steepness of selling in ENI, there aren't really any meaningful overhead resistance levels that could act as price ceilings for shares. For that reason, this stock has the potential to see a double-digit near term move.

Rules for a protective stop are the same in this name.

Nicor Inc.

Volatility has certainly been stepped up in shares of gas distribution firm Nicor Inc. ( GAS) -- this stock has seen its Bollinger Bandwidth (a measure of volatility) expand dramatically in August, the result of the price swings that investors have endured. Still, flux aside, the bulls may be in store for some upward pressure.

Right now, shares of GAS are testing all-time highs at the $56.30 level, a resistance level that the stock has hit its head on a few times in the past. Breakouts above all-time (or even shorter-term) highs are mainly bullish for psychological reasons: when everyone is sitting on profitable positions, the conditions are much better for buyers to get reckless and push shares higher.

As with the ascending triangles we looked at before, this is a breakout trade. That means it's crucial to wait for shares to actually make a move above $56.30 before becoming a buyer. Until then, this isn't a high-probability trade.

Berkshire Hathaway

Not all of this week's setups are ostensibly bullish - and even the Oracle of Omaha isn't immune to market pressures. While Warren Buffett may be one of the most well-respected figures in the investment world, market participants are discounting shares of his firm, Berkshire Hathaway ( BRK.A), ( BRK.B) right now.

Berkshire has been locked in a downtrending channel for the last few months, bouncing lower as shares knock against dynamic resistance level that's largely coincided with the 50-day moving average. Buffett's exposure to interest rates, and counter-trend investments in firms like Bank of America ( BAC) are likely largely to blame for the market's bias against Berkshire - and that bias should be heeded.

If you see betting against Berkshire as market blasphemy, this stock's chart at least indicates that it'd be a bad move to buy into a position just yet. Bulls should wait for a break above the 50-day moving average before going long -- that's also when shorts should plan on stopping out.

Berkshire Hathaway appears in Scott Rothbort's portfolio A Racing Stable of Stocks on Stockpickr.

Chipotle Mexican Grill

Last up this week is a recap of one of the technical setups that we took advantage in last week's column: Chipotle Mexican Grill ( CMG).

At the time, I said that while the technicals didn't look good for the stock, "...a trendline break doesn't necessarily mean that the floor is falling out of Chipotle." Instead, buyers should be looking for a bounce off of dual support at the $270 level. Sure enough, prices flirted with $270 last week, only to get smacked higher as a glut of demand entered shares.

All told, that trade could have netted 9.7% on the week for traders who took advantage.

With shares re-entering the uptrend channel in Chipotle, this is one trade that I think still makes sense to hold at this point. I'd recommend that risk-averse traders keep a protective stop just below $300 to lock in their gains.

Chipotle Mexican Grill turns up in the Stockpickr portfolios 10 Best-Performing S&P 500 Stocks to August and Top-Rated Restaurant & Hotel Stocks.

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

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-- Written by Jonas Elmerraji in Baltimore.

At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, based out of Baltimore, 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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