BALTIMORE (Stockpickr) -- Stocks are playing hard to get as we edge closer to the end of another week of January trading. So far this year, stocks have moved a whopping 0.21% lower. The "January Effect" this ain't.
But make no mistake, just because stocks are taking a breather doesn't mean that this bull market is over. Far from it. From a technical standpoint, we're due for a healthy correction in the big indices right now, and the stats favor a double-digit performance in 2014 after the rip-roaring rally that stocks gave us last year. So now it's just a matter of picking the right stocks.
To do that, we're taking a technical look at five of the biggest names on Wall Street this week.
If you're new to technical analysis, here's the executive summary.
Technicals are 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 high-volume stocks to trade this week.
After a slow start last year, Bunge (BG - Get Report) kicked it into high gear in the last six months, catching up with the S&P's performance by year-end. But if you missed the upside in this $12 billion agribusiness, never fear. The technicals indicate that Bunge has greener pastures ahead.
That's because Bunge is currently forming an ascending triangle pattern, a bullish setup formed by horizontal resistance to the upside at $83 and uptrending support below shares. Basically, as Bunge bounces in between those two technical levels, it's getting squeezed closer and closer to a breakout above resistance. When that breakout above $83 happens, we've got our buy signal.
We're seeing the exact opposite setup in shares of Chinese cellular carrier China Mobile (CHL) -- and after a major breakdown late last week, CHL looks primed for more downside ahead. China Mobile is currently forming a descending triangle, the bearish opposite to the bullish setup in Bunge.
Support just below $52 acted as a price floor for shares all the way back since August, but the breakdown last week took out any buying pressure at that level, triggering a sell signal for shares. $47 is the next-lowest support zone to watch in the next few weeks.
Momentum adds some extra downside evidence for CHL: 14-day RSI has been trending lower since this pattern started forming. That's an indication that prices are falling at an increasing rate in China Mobile right now.
For a quick short trade, CHL looks like a good option this week.
Back on the bullish side is Target (TGT - Get Report). This $39 billion retailer got hit hard in the latter half of 2013, but it looks like it's turning the corner thanks to a "double bottom" pattern that's been forming in shares. The buy signal comes on a move through $67.
Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. Triangles, double bottoms, and other pattern names are a good quick way to explain what's going on in a stock, but they're not the reason it's tradable. Instead, it all comes down to supply and demand for shares.
That $67 resistance level is a price where there has been an excess of supply of shares; in other words, it's a place 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 it so significant; the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
A positive divergence in RSI adds some extra evidence for an upside move from here. That said, wait for $67 to get taken out before jumping into shares.
Berkshire Hathaway (BRK.B) is another turnaround name worth watching right now. Berkshire has spent the last few months looking "toppy," but the sell signal never actually triggered. So after looking bearish for a long time, this conglomerate is finally starting to resolve higher -- and you don't need to be an expert technical analyst to see why.
Berkshire has started forming an uptrending channel, a bullish setup that's formed by a pair of parallel trendlines. When it comes to price channels, up is good and down is bad; it's as simple as that. Shares have bounced higher on each of the last six tests of trendline support, and so, as shares come down to test support for a seventh time, buyers are getting a chance to get into this trade. The time to buy comes on a bounce off of trendline support, not before one.
Relative strength still looks anemic in Berkshire Hathaway right now, and that's a big problem. Look for a change in the relative strength downtrend when BRK.B bounces off of support.
Last up is health insurance company Aetna (AET). In the last year, Aetna has rallied more than 52%, blowing the broad market's impressive performance right out of the water. But despite those huge gains, AET looks primed for even more upside thanks to one of the most classic technical patterns in our toolbox.
Aetna is currently forming an inverse head and shoulders, a setup that indicates exhaustion among sellers. The pattern is formed by two swing lows that bottom out around the same level (the shoulders), separated by a deeper low (the head). The buy signal comes on a move through the neckline, which is right at $69. AET's pattern isn't exactly textbook, but the trading implications are exactly the same.
Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That's good reason to keep an eye on Aetna as shares creep closer to $69.
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.