BALTIMORE (Stockpickr) -- Stocks are slated for a pullback today, dipping early in Thursday's session after a rip-roaring week-and-a-half of buying. In that time, the S&P 500 has managed to regain almost every point ceded in January's correction -- so Mr. Market can be forgiven for looking a little sluggish this week.
The bigger picture is what matters here. As I write, the primary trend for equities is still very much up and to the right. Until that changes, we're still in a "buy the dips market."
While we're not at a dip in the big indices quite yet (that happened at the start of the month), this week is bringing some buying opportunities in individual stocks. That's why we're taking a closer technical look at five big-name trades today.
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.
First up is a name that's been under pressure recently: Wal-Mart Stores (WMT). Shares of WMT are down 5% in the last quarter, the same time that the broad market has managed to push into gains. So, you want a bargain in the world's biggest retail stock? Then wait.
Wal-Mart has been trading sideways for a while now. But since this summer, one important constant has been the fact that shares have been able to catch a bid at $72 support. As shares roll over for a fifth time in the last seven months, that price floor looks like a likely target for WMT. Bargain-hungry buyers should look to jump in on a bounce off of $72.
No, there's no fancy name for the trading setup in WMT, and that's just fine; whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. 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.
In Wal-Mart's case, that support line at $72 is a price where there's an excess of demand for shares; in other words, it's a place where buyers have been more eager to scoop up WMT at newly low prices than sellers have been to keep selling. As long as Wal-Mart can hold onto that $72 level on the next test, it's a solid buying opportunity.
Exxon Mobil (XOM) is another name that's been all over the place in its trading. The $410 billion oil and gas supermajor has only moved 6% higher in the last year, making it a serious underperformer compared to the big equity indices. But zoom out a bit, and things look a lot more auspicious in XOM.
That's because this huge energy stock is forming an uptrending channel right now -- albeit in the very, very long term. Recent underperformance is more a symptom of measuring performance from peak to trough in the channel. Exxon's channel is important because it gives traders a high-probability range for shares. And the optimal time to be a buyer again comes when XOM retraces back to the bottom of its channel.
The optimal time isn't the only time, though. With shares just a few dollars above trend line support, there's a lot more upside than downside in XOM right now. Traders or investors with longer-term holding times can feel confident buying here.
Delta Air Lines
We're seeing the exact same setup in shares of Delta Air Lines (DAL) right now. The big difference is that Delta's chart doesn't require quite as much zooming out to spot -- but it's equally long term. The uptrend in Delta has been caging shares since back in April 2013.
Delta's an important trade this week because shares are coming down to test trend line support for the tenth time -- the optimal time to buy comes on a bounce. Waiting to buy 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, you're ensuring DAL can actually still catch a bid along that line.
Relative strength has looked impressive over the course of the uptrend in Delta. That means that for every point the S&P has gained, Delta has gained more than a point. If you decide to buy the bounce in Delta today, I'd recommend keeping a protective stop at the 50-day moving average -- that level has been a solid proxy for support all the way up.
We're coming up on a buying opportunity in shares of CNA Financial (CNA) too. CNA has been showing investors some serious upside in the last year, rallying more than 30% since this time in 2013. If you missed the move, don't worry. The next buy signal looks ready to flash this week.
CNA is currently forming an inverse head and shoulders pattern, a bullish price 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). A breakout above the neckline is the buy signal -- CNA's neckline is right at $41.50. Shares have flirted with that level in the past without holding above it, so waiting for a confirmed move is particularly important here.
Momentum, measured by 14-day RSI, adds some extra confidence to the CNA trade. While the momentum gauge started moving lower when the inverse head and shoulders started forming, it reversed into an uptrend in the first week of 2013. Since momentum is a leading indicator of price, that's a good sign for traders waiting for a breakout.
Last up is JPMorgan Chase (JPM), a name that we looked at last week. At that point, JPM was looking "toppy" thanks to the bearish counterpart of the setup we just looked at in CNA: a head and shoulders top. A week later, this setup is looking even more textbook.
JPM's right shoulder has been the big question as this pattern formed If shares kept moving higher, the downside setup would be invalidated. But yesterday's session kicked shares down more than 2%, potentially starting a move down lower to the neckline. Coupled with an RSI downtrend since this setup started forming, anyone long JPM should keep a close eye on what's going on in this chart.
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 both CNA and JPM this week.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.