BALTIMORE (Stockpickr) -- At 2 p.m. yesterday, Fed Chairman Janet Yellen gut punched Mr. Market. And that's not necessarily a bad thing.
In her first FOMC meeting as the big boss, Yellen caught markets by surprise: Not only is the taper going strong in 2014, but the Fed also sees interest rates increasing in the relatively near-term. That's a big departure from the "0% forever" Fed stance that's been game-on since the Great Recession.
Markets reacted by immediately dropping on the release of the Fed minutes, then dropping again as soon as Yellen started talking at the press conference. Despite the drop, Yellen's comments yesterday shouldn't have been quite the surprise that they ended up being; nothing has really changed in the last month.
But that market flux means that trading signals are popping up in Wall Street's biggest stocks. So today, we'll take a technical look at 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.
There are a lot of fundamental reasons why buoyant interest rates are a good thing for financial firms such as JPMorgan Chase (JPM), but none of those matter in the immediate term. Instead, it's the price action that's signaling a buying opportunity in shares right now.
JPMorgan is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares at $59.50, and uptrending support to the downside. Basically, as JPM bounces in between those two technical price levels, shares are getting squeezed closer and closer to a breakout above resistance. When that $59.50 price tag gets taken out, we've got our buy signal.
Relative strength has been making higher lows in JPM since November. With the broad market showing indications of a correction forthcoming, that relative strength uptrend is an important confirmation of buying pressure in this stock. When the broad market is in corrective mode, relative strength (not to be confused with RSI) is the single most important indicator you can have in your technical toolbox.
Energy Transfer Partners
We're seeing the exact same setup in a very different name: Energy Transfer Partners (ETP). Shares of this $17 billion natural gas transportation stock are forming an ascending triangle of their own, with resistance at $56 in this case. When that $56 price ceiling gets violated, it's time to join in on the buying.
That's not because of market magic -- the rationale behind the $56 breakout level is a lot more simple than that. Whenever you're looking at any technical price pattern, it's critical to think in terms of buyers and sellers. Triangles and other price 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.
That resistance line at $56, for example, is a price where there's an excess of supply of shares; in other words, it's a place where sellers have been more eager to take recent gains and sell their shares than buyers have been to buy. That's what makes the move above it so significant -- a breakout indicates that buyers are finally strong enough to absorb all of the excess supply above that price level. ETP isn't a high probability trade until that $56 breakout happens.
Things are a lot more straightforward in shares of TE Connectivity (TEL) -- you don't have to be an expert technical analyst to figure out what's going on in this stock. Instead, a quick glance at the chart will do. TEL is currently bouncing higher in an uptrending channel, a bullish setup that's bounded by a pair of parallel trend lines.
Price patterns don't get much more simple than the uptrend in TEL. The trend channel gives traders a high probability range for shares of this $24 billion name to stay stuck within. And so, as TEL corrects down to test trend line support for the eighth time since August, patient traders have a buying opportunity up ahead.
That patience is key in TEL -- the optimal time to buy comes on a bounce off of support.
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 TEL can actually still catch a bid along that line before you put money on the line.
The channel in PetroChina (PTR) doesn't look quite as auspicious. When it comes to trends, up is good and down is bad -- it's really just as simple as that. So, the downtrend in PTR means that you want to be a seller the next time shares get close to trend line resistance.
The 50-day moving average has been a workable proxy for resistance for the past several months. The next time PTR manages to wedge itself in between the 50-day and trend line resistance, selling the bounce lower makes a lot of sense. From here, with shares mid-way through the channel as I write, it's likely we'll see a test of trend line support.
PetroChina could see even more pressure thanks to the Fed's hawkish positioning this week. A buoyant dollar means that commodities prices in Chinese yuan get doubly punished -- and that's bad for PTR's earnings.
Last, but far from least, is big banking name Wells Fargo (WFC). Wells has been churning out strong performance in 2014. Since the calendar flipped over to January, WFC has managed to shove its way more than 5% higher, vs. flat trading for the S&P. So how do you trade it from here?
In the short term, WFC has been consolidating sideways in a price setup called a rectangle. Rectangles get their name because they essentially "box-in" shares; they're common after large upward moves, and they give buyers and sellers a chance to figure out their next moves in shares. So, after rallying nearly 16% since October, Wells Fargo's price action qualifies. The buy signal comes when WFC pushes through resistance at $48.50.
Momentum, measured by 14-day RSI, adds some extra confidence to the WFC trade. Our momentum gauge has been making higher lows, even while Wells Fargo slugged sideways -- that's an important indication that buying pressure is building as this stock tests its $48.50 breakout level again.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.