BALTIMORE (Stockpickr) -- Stocks are kicking off another week of flat trading this week, following a five-day stretch last week that ended up a wash when all was said and done. "Sideways" has been the name of the game since the calendar flipped to July: Month-to-date, the S&P 500 index has moved less than 1%.
That's all the more reason to focus on names with breakout potential this week.
Even though the price action in the big indices hasn't been much to speak of in July, there has been no shortage of individual names making big moves this month. To find the next movers, we're taking a closer technical look at five breakout names that look ready to move higher.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Up first is NewMarket (NEU), a $5 billion chemical business that's been showing investors some strong performance in 2014. Since the start of this year, NEU has moved 18% higher, more than doubling the S&P's performance over that same stretch. Don't worry if you've missed the move so far -- NEU looks primed for a second leg higher in the second half of the year.
That's because NEU is currently forming an ascending triangle setup, a bullish price pattern that's formed by horizontal resistance above shares (in this case at $400) and uptrending support to the downside. Basically, as NEU bounces in between those two technically important price levels, it's getting squeezed closer and closer to a breakout above that $400 resistance line. When that happens, we've got a buy signal in shares.
Momentum, measured by 14-day RSI, is the confirming indicator to look at in this stock. Our momentum gauge has been making higher lows all year long, making its way higher in a shallow uptrend. Since momentum is a leading indicator of price, it adds some confidence to an upcoming breakout in NEU. When $400 gets taken out, it's a buy.
We're seeing the exact same price setup in shares of private club operator ClubCorp Holdings (MYCC). Like NEU, ClubCorp is currently forming an ascending triangle setup, in this case with a breakout level at $19 resistance. When shares of this recent IPO push through $19, we've got our high-probability buy signal in MYCC.
Why all of that significance at $19? 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 ClubCorp's stock.
The $19 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 $19 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Canadian Natural Resources
Canadian Natural Resources (CNQ) is a name that's been on fire so far this year. Since the first session in January, shares of the $49 billion energy stock are up more than 31%. Better yet, CNQ looks primed to keep moving higher in August. The good news is that you don't need to be an expert technical trader to figure out what's going on in shares of CNQ. Shares of this energy company are showing us a price setup right now that's about as simple as they get.
CNQ has spent almost all year bouncing its way higher in a well-defined uptrending channel, a pair of parallel trend lines that's provided traders with a high-probability range for shares of this stock to trade within. When it comes to trend channels, up is good and down is bad -- it's really just as simple as that. Every successive test of trend line support has provided an optimal entry point for traders looking for buying opportunities in CNQ, so as shares bounce off of support for a fourth time here, it makes sense to buy on this stock's next white-bar day.
The 50-day moving average has been a nearly perfect proxy for trend line support on the way up. That makes it a logical place to keep a protective stop if you decide to jump in on the CNQ trade this week.
Hertz Global Holdings
Car rental giant Hertz Global Holdings (HTZ) is another name that's been bouncing its way higher in an orderly uptrending channel. In the case of this name, the 200-day moving average has been a much better proxy for trend line support for all of 2014. Every single test of the red line on that chart has provided a very low-risk entry opportunity in HTZ. And now it makes sense to buy the next bounce.
Waiting for a bounce off of trend line support is a key risk management strategy for HTZ buyers for two big reasons: It's the spot where shares have the furthest to move up before they hit resistance, and it's also 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 Hertz can actually still catch a bid along that line before you put your money on shares.
This morning's earnings call could delay the next test of trend line support -- shares are pointing higher at the start of the day. Just remember that patience is a virtue when it comes to trading trend channels.
Last up on our list of tradable charts is Tech Data (TECD), a wholesale technology product distributor. Like a few of the other names we've looked at so far, TECD has rallied hard year-to-date (24% as of this writing), but it's primed for an even higher move thanks to a bullish setup in shares.
In TECD's case, the breakout potential comes from a classic inverse head and shoulders pattern.
The inverse head and shoulders is a 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 pattern’s “neckline” level, currently right at $65 resistance. This isn't a textbook pattern (it's coming in at the top of TECD's recent range, not the bottom), but that doesn't change the trading implications on a move through the $65 level.
For Tech Data Corp, the side indicator to watch is relative strength, the lower subchart on the chart above. TECD's relative strength line has kept its uptrend intact since December, which means that this stock isn't just moving higher, but it's also outperforming the S&P 500 along the way. As long as relative strength keeps making higher lows, this stock should keep beating the rest of the market. Wait for $65 to get taken out by increasingly eager buyers before you put money on this trade.
To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.