BALTIMORE (Stockpickr) -- With trading desks across the country getting ready for the Fourth of July market holiday, prepare for a riveting day of low volume. Despite a pile of economic data that hit at 8:30 this morning, and earnings season kicking off next week, the day before the July 4 break tends to be one of the quieter sessions of the year.
That doesn't mean that you should turn your attention to readying the grill and procuring a case of legally questionable fireworks for tomorrow just yet. Even though volume is going to be light today, there are still some big summer gains about to be set in motion. That's why we're turning to the charts to find five big-name stocks that look ready for a summer breakout.
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 $13 billion electronic instrument maker Ametek (AME), a stock that's turned out some solid performance in the last year. Since this time last summer, AME has rallied more than 24%, beating the rally in the S&P 500 over the same stretch. Things have slowed since the calendar flipped to 2014; since then, shares haven't budged much at all.
But that sideways consolidation is the very thing that's hinting at a second leg up in the second half of this year.
Ametek is currently forming an ascending triangle pattern, a bullish price setup that's formed by a horizontal resistance level above shares (in this case at $54) and uptrending support to the downside. Basically, as AME bounces in between those two technically important levels, it's getting squeezed closer to a breakout above that $54 price ceiling. When that happens, we've got our high-probability buy signal.
Momentum, measured by 14-day RSI, adds some extra confidence to this setup. In spite of the sideways price movement this year, RSI is still making higher lows in the intermediate term. Don't jump in until price actually punches through $54 resistance.
Fidelity National Information Services
$16 billion banking and payment services firm Fidelity National Information Services (FIS) is showing traders the exact same setup right now. For FIS, the breakout level to watch is $55, a price level that's swatted shares down on the last five tests. When FIS pushes through $55, we'll have a buy signal.
Why all of that significance at $55? 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 actual reason a stock is tradable. Instead, the "why" comes down to basic supply and demand for FIS' stock.
The $55 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 $55 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
One final note on FIS: A bull trap in early February previously broke out above $55 only to get batted down at $56. That means that it's important to wait for a confirmed move through the $55 level. Don't jump into this name on the first hint of a breakout.
Apple (AAPL) is making a play for all-time highs this week. Following the share split earlier this month, Apple pushed up to resistance at $95, only to get swatted lower for the rest of the month. But the $563 billion tech giant is making a second play at that $95 price ceiling, and it could clear the way to a return to a triple-digit price tag for Apple.
AAPL is currently forming a rounding bottom setup, a price setup that indicates a gradual transition in control from sellers to buyers. The pattern's name is a pretty good description of how it looks on a chart. Even though Apple'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 $95 price ceiling.
One final indicator to watch in AAPL is relative strength. AAPL started outperforming the broad market towards the end of April, and it's been making higher lows since. Statistically speaking, positive trends in relative strength make a stock likely to keep outperforming the broad market for the following three-to-10-month window; that bodes well for AAPL buyers right now.
It's easy to forget that $79 billion regional bank U.S. Bancorp (USB) tips the scales as the fifth-largest U.S. bank by market capitalization -- but the fact is that this big banking stock has some serious heft behind it. And right now, that market heft is pointing towards a big breakout signal for shares of USB in the week ahead.
Like Apple, USB is another name that's forming a rounding bottom pattern. For this setup, the breakout level to watch is resistance at $43.50. If buyers can muster the strength to push USB through that $43.50 price ceiling, then we've got a signal to join them. The minimum measuring objective for the pattern in USB puts this stock's price target at $47 after the breakout happens. That's a potential 8% upside move from here.
Last up is $22 billion tobacco firm Lorillard (LO), another name that's sending traders some bullish signals this week. And as luck would have it, you don't need to be an expert technical trader to figure out what's going on in this stock. A quick glance at the chart should tell you just about everything you need to know. In short, LO looks like a "buy the dips stock", and we're coming out of a dip to end this week.
Lorillard has been in a well-defined uptrending channel since mid-February, bouncing its way higher in between a pair of parallel trend lines that identify the high-probability range for LO's stock to stay within. When it comes to trend channels, up is good and down is bad it's really just as simple as that. So, as this stock tests trend line support for the sixth time since this pattern came into play, it makes sense to buy the next bounce off of support, a signal we could see as soon as today.
Waiting for a bounce is important for two key 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 LO can actually still catch a bid along that line before you put your money on shares.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.