AutoDeskUp first is design and engineering software maker Autodesk ( ADSK). Autodesk has gotten ramped-up trading attention lately, most recently thanks to a conspicuous earnings and guidance miss last week that gapped shares down considerably lower. Now ADSK could be in store for even lower ground thanks to the technical setup in shares. >>5 Earnings Stocks Everyone Hates -- But You Should Love Autodesk is currently forming a head and shoulders top, a price setup that indicates exhaustion among buyers. The head and shoulders is formed by two swing highs that top out around the same level (the shoulders), separated by a bigger peak called the head; the sell signal comes on the breakdown below the pattern's "neckline" level, which is right at $36 for ADSK. A drop below that $36 level would be a major sell signal for the stock. A drop through $36 puts Autodesk's downside target down at $31, a price that's acted as support in the past. If you own ADSK, I'd recommend selling on the $36 break unless you can stomach taking a 14% near-term haircut on your position. If you decide to short this stock, I'd recommend a tight protective stop in place.
Opko HealthSmall-cap pharma firm Opko Health ( OPK) doesn't normally qualify for "big name" status, but the nearly parabolic price action that this stock saw earlier this year put it on plenty of traders' radar. Shares of OPK slingshotted more than 43% higher to start the year, and they've been consolidating sideways ever since. But the price action during this stock's sideways slugging points to a drop. >>4 Health Care Stocks Spiking on Big Volume Like Autodesk, Opko is forming a head and shoulders top. For OPK, the neckline level comes in at $6.50 -- if shares drop below that price, we've got a sell signal. The pattern's minimum measuring objective puts a best-case price target down at $5.25; that's a 20% drop from the neckline. I said that $5.25 was best-case because it's a level that hasn't really acted as support in the past. As a result, it's unclear just how well OPK can catch a bid if it falls down to that level. Momentum, measured by 14-day RSI, adds some extra confidence to the head and shoulders top in OPK. RSI has been in a downtrend since all the way back in January. Since momentum is a leading indicator of price, that downtrend points to downside in OPK's chart.
Cliffs Natural ResourcesCliffs Natural Resoures ( CLF) is another small name that's been seeing huge trading activity lately. This stock has gotten summarily shellacked in 2013, nearly halved since the start of trading this year. And while it looked like CLF investors were due for a reprieve, the latest short-term price action begs to differ. >>How to Use a Stock Screener to Scan for Hot Stocks CLF is forming a head and shoulders top like OPK and ADSK - the big difference with this chart is the fact that Cliffs' setup is extremely short-term. The stock's slanting neckline comes in at $20 as I write. Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. After all, head and shoulders setups and other pattern names are a good quick way to explain what's going on in this stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares. The neckline at $20 is a place where CLF has been able to catch a bid -- it's a price level that, if broken, tells us that sellers have overwhelmed any buying pressure down at that price. That's why it makes sense to run when the neckline is broken, even if the setup only has short-term trading implications.
KelloggKellogg ( K) has been enjoying a solid run in the last six months - as a prototypical consumer blue chip, Kellogg's stock chart has moved up and to the right like clockwork, boosting the stock's value by close to 20%. But since April, that uptrend hasn't been moving up. Here's how to trade Kellogg from this point. >>5 Rocket Stocks Ready for Blastoff In short, Kellogg is in make or break mode right now. Shares have been forming a bearish double top pattern over the last two months, setting up a downside move on a breakdown below $63. While the uptrend support line in K (the grey dashed line in the chart) is still tentatively intact right now, it gets broken just before $63 gets knocked out. That would make for a double-whammy of broken support levels if Kellogg fails here. Today's early trading doesn't look promising for Kellogg here, but I doubt that we'll see an actual test of the $63 level until next week. If the break happens, you won't want to be left holding the bag in Kellogg.
Bank of MontrealLast up on the list today is the Bank of Montreal ( BMO), a $40 billion Canadian bank that's been doing a whole lot of nothing in 2013 despite some volatile price swings over the course of the year, BMO is only 0.6% lower today than it was on Jan. 2. But it's those swings that investors should be paying attention to in May. BMO is currently forming a broadening pattern, a setup that indicates increasing volatility in a stock. Resistance is fairly flat at $63 for BMO, and support has been dropping with a series of lower lows, which tells us that sellers at holding their ground at $63, and buyers are getting beaten down to decreasing prices as time goes on. Those aren't signs you want to see in a stock you own. Statistically, broadening patterns tend to resolve to the downside. That means that we're more likely to see BMO shove through that dropping support line than we are to see it crack resistance at $63. With strong support in place at $55.50, that price could be a stopping point for a drop in BMO, but it's a long way away from here. If you want to bet against shares, wait until shares break down through support, then keep a stop at the 200-day moving average. To see this week's trades in action, check out this week's Must-See Charts portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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