BALTIMORE (Stockpickr) -- The book on April trading closed at 4:30 p.m. Eastern yesterday. All told, the S&P 500 ended the month 11.6 points higher than it started. That's a whopping 0.62% gain for anyone keeping score.
And it's almost identical to the essentially flat performance stocks achieved in March.
The big indices have effectively spun their wheels since the first week of March, consolidating sideways while investors got increasingly frustrated. Unless you owned a lot of Nasdaq names, that is -- the Nasdaq Composite fell 4.5% over that same stretch. That's a jarring drop for a big index that's been leading its peers for the last few years.
But if April showers bring May flowers, then maybe April corrections are laying the pavement for May gains. "New month, new market" has been par for the course in 2014. And plenty of individual names have offered some big opportunities since the calendar flipped to January.
So as May trading kicks off this morning, we're taking a technical look at attractive trades in five of Wall Street's biggest stocks.
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 $38 billion industrial gas supplier Praxair (PX). Praxair has been in rally mode for the last year and change, climbing around 16% in the trailing 12 months. While that's not quite the breakneck pace that the big momentum movers have clocked over that timeframe, it's around triple the return of the rest of the basic materials sector over that stretch.
And now, Praxair looks ready to tack more gains onto its run. Here's why.
Praxair is currently forming a textbook ascending triangle setup, a bullish price pattern that's formed by horizontal resistance above shares at $133 and uptrending support to the downside. Basically, as PX bounces in between those two technically important price levels, it's getting squeezed closer and closer to a breakout above that $133 price ceiling. When the breakout happens, we've got our buy signal.
Despite this stock's rally, momentum, measured by 14-day RSI, has bled off to neutral in the last month. That gives PX a lot of room to run before getting overbought. Don't be early on this trade; wait for $133 to get taken out before you jump in.
Emerson Electric (EMR) is another large-cap name that looks ready to extend its rally in May. Emerson has climbed more than 25% since last May, beating the S&P by a wide margin -- but $70 was a stumbling block at the start of 2014 and again last month. That's not a reason to avoid shares up around $70, though. Instead, that overhead resistance at $70 is exactly what makes this name tradable.
EMR is currently forming a "rounding bottom" pattern, a price setup that indicates a gradual transition in control from sellers to buyers. The patterns name is a pretty good description of how it looks on a chart. Even though EMR's rounding bottom came in at the top of its recent price range (not the bottom), the trading implications are just the same. The buy signal triggers on a move through our $70 price ceiling.
Why all the significance at $70? It all comes down to buyers and sellers. Price patterns are a good quick way to identify what's going on in the price action, but they're not the reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for Emerson's stock.
The $70 resistance level is a price where there has been an excess of supply of shares; in other words, it's a spot where sellers have previously been more eager to step in and take gains than buyers have been to buy. That's what makes a breakout above $70 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. EMR is close this week, but it's not there yet.
We're seeing the exact same setup in shares of Dow Chemical (DOW) right now. Like Emerson, Dow is forming a rounding bottom, in this case with a breakout level at $50. The fact that DOW's resistance level comes right at a big round number price is significant; it means that if shares can catch a bid above $50, more investor eyes are going to be fixated on the move through that level.
Relative strength adds some important backup for a buy signal in DOW. That performance indicator has been in an uptrend since back in November, a signal that Dow Chemical is continually outperforming the S&P in good times and in bad ones. As long as the broad market remains in "correction" mode, relative strength is the single most important indicator you can have in your trading toolbox.
Royal Dutch Shell
You don't have to be an expert technical analyst to see that Royal Dutch Shell (RDS.B) has been looking bullish over the last seven months. Since October, this $250 billion energy company has rallied almost 30% in a well defined uptrending channel. That's about as basic a technical price setup as they get.
But something happened in yesterday's session: Shares of Royal Dutch Shell gapped higher yesterday on earnings news, pushing through the top of the channel that's constrained this stock's price action until now. That move looks like the start of a bullish change of trend. If we see some continuation in today's session, then it's a buy. More specifically, the time to buy comes on a bounce off of the top of the channel.
Waiting for a bounce to buy means that you'll leave some money on the table in RDS.B. But more importantly, it verifies that shares can still catch a bid above the channel before you dump money into the trade. The 50-day moving average has been a good proxy for support in RDS.B on the way up, which makes it a logical place to keep a stop loss.
Last up is $20 billion gold producer Goldcorp. (GG). Goldcorp corrected hard in the last two months, dragged lower by falling spot gold prices. Since gold miners are basically leveraged bets on gold prices, they get hit even harder when prices fall. That's the catalyst behind GG's 14% drop since the middle of March. But shares are starting to look "bottomy" in May. Here's when to buy again:
Goldcorp is currently forming an inverse head and shoulders pattern, a classic technical 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 bigger trough called the head; the buy signal comes on the breakout above the patterns neckline level, currently right at $25.50.
Like the other big breakout trades on our list, this trade is conditional: GG needs to show that it can hold a bid above that $25.50 neckline before it becomes a high-probability buy. But once $25.50 gets taken out, Goldcorp's minimum upside target ratchets up to $28. More likely, if $28 gets tested we'll see a test of 2014 highs this summer.
That's good reason to keep an eye on Goldcorp's $25.50 level this month.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.