BALTIMORE (Stockpickr) -- Half-way through January's trading, the S&P 500 has given traders a big goose-egg, a stark contrast to the breakneck rally that steered shares higher a year ago.
By this time in 2013, the S&P 500 had already rallied close to 5%.
But even though the broad market isn't budging in 2014, big individual issues certainly are. And that under-the-radar volatility is creating trading opportunities in some of Wall Street's highest-volume names. So today, we're turning to the charts to take a closer look at the technical trading setups in five of them.
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.
HD Supply Holdings
First up is HD Supply Holdings (HDS), an industrial distributor that's a relative newcomer to the public markets; HD Supply started trading this summer on the Nasdaq. Even though this $4.5 billion firm's trading history is short, shares are showing early signs of an important breakout.
Here's everything you need to know.
HDS is currently forming a cup and handle pattern, a classic bullish price setup that's formed by a cup-shaped rounding bottom in shares that's followed up by a short-duration channel down. The buy signal comes on a move through the pattern's price ceiling at $24.50. Shares have flirted with that $24.50 level a few times in the past; that'll make waiting for confirmation all the more critical for investors looking to get in with minimal risk.
The technicals don't get much easier than what we're seeing in shares of mid-cap homebuilder NVR (NVR). When it comes to price channels, up is good and down is bad; it's as simple as that -- and NVR is looking very good as we get deeper into 2014.
NVR spend most of 2013 pointed lower, getting swatted down every time shares tried to push past a down-sloping trendline resistance level (in red on the chart above). But a change in trend back in September shifted control to buyers and kicked NVR's trading into a well-defined uptrend. That uptrend provides a high-probability range for shares going forward -- and the best time to be a buyer is on a bounce off of support. We're getting one this week.
Momentum, measured by 14-day RSI, adds some extra evidence for upside in shares of NVR. RSI has been in an uptrend since before the uptrend started in NVR's price. If you to decide to jump into NVR here, the 50-day moving average has been a good proxy for support on the way up, making it a solid place for a stop loss level.
We're seeing the exact same setup in shares of Microsoft (MSFT) right now -- except in the longer-term. Like NVR, Microsoft is currently forming an uptrending channel, bouncing higher on each successive test of trendline support. Unlike NVR, MSFT's uptrend has stretched back all the way to the start of last year. Either way, with shares bouncing this week, now's the time to buy this tech titan.
Buying off a support bounce makes sense for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's the spot where the risk is the least (because shares have the least room to move lower before you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, we're ensuring Microsoft can actually still catch a bid along that line.
At the bottom of the chart, relative strength is the indicator to watch for an extra thumbs-up on the Microsoft trade. Don't confuse relative strength with RSI -- the former measures a stock's performance vs. a benchmark, and it's one of the more powerful tools traders can have in their toolboxes when the big indexes are stagnant. The RS uptrend in MSFT looks solid right now.
Things aren't looking quite so hot in shares of drugstore chain Walgreen (WAG). In fact, the $56 billion retail pharmacy is looking downright "toppy" as we head into 2014.
The pattern to watch in WAG is a "double top." Like the name suggests, the setup is formed by two swing highs that lose steam at approximately the same level. The sell signal comes on a move through support at $56. That means that WAG isn't down and out just yet, but it'll make a great short candidate if shares dip below that $56 price floor.
Whenever you're looking at any technical price pattern, it's critical to think in terms of those buyers and sellers. Double tops, cups and handles, 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 support level at $56 is a price where there has been an excess of demand of shares; in other words, it's a place where buyers are more eager to step in and buy shares at a lower price than sellers were to sell. That's what makes a breakdown below $56 so significant -- the move would indicate that sellers are finally strong enough to absorb all of the excess demand at that price level. Wait for that indication before you sell.
Last, but certainly not least, is Aetna (AET), a name that we first looked at in last week's column. At the time, AET was forming an inverse head and shoulders and testing a breakout above its neckline at $69. Sure enough, we got our breakout a week ago, and shares have pushed nearly 5% higher in the sessions since.
The question now is where is goes from here.
AET's relatively large price pattern comes with some equally large trading implications. The stock's minimum measuring objective puts a price target up at $77 -- another 8% higher from where shares sit now. If you jumped in at the $69 breakout, I'd recommend keeping a trailing stop on this name in order to exit a little more conservatively than simply selling when shares touch the $77 level. After all, health care names are working now, and it makes sense not to pull the rug out from AET before it has a chance to work itself out.
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.