BALTIMORE (Stockpickr) -- A measly 4 points -- that's all that stands in between the S&P 500's closing price yesterday and new all-time highs.
That's not the surprising part, though. The S&P has been flirting with new highs for much of 2014. Instead, the surprising part is the fact that Fed Chair Janet Yellen helped to close that gap following her statements yesterday afternoon. Normally, the Fed is better at crashing the market than helping it on, but it helped that the central bank didn't sneak any surprises in their meeting minutes.
The Fed reaction is only part of the story, of course. A more important factor in the S&P's long-term rally has been its technical picture -- and the fact remains that the big indices have been extremely technically obedient this year.
Even better, that predictable price action is setting the stage for even bigger move in some of Wall Street's largest names. So today, we're taking 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.
Up first is $56 billion independent oil and gas exploration and production company Anadarko Petroleum (APC) . 2014 has been a spectacular year for shares of APC. Since the calendar flipped to January, this large-cap energy name has rallied almost 39%. But don't worry if you missed the move in APC; this stock looks ready to make another leg higher in August.
Anadarko is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares at $112.50 and uptrending support to the downside. Basically, as APC bounces in between those two technical price levels, it's getting squeezed closer to a breakout above that $112.50 price ceiling. When that happens, we've got a buy signal in shares.
Relative strength is the side-indicator to watch in APC. That's because this stock's relative strength line has been in an uptrend since the start of April, an indication that Anadarko is outperforming the S&P 500 in good times and bad ones. As long as that uptrend remains intact, APC should keep doing better than the broad market.
$23 billion life genetics firm Illumina (ILMN) is another name that's showing traders a big breakout setup this week after a big rally to start the year. Since January, ILMN has paid out a 56% return to shareholders, making it one of the best-performing large-cap stocks of 2014.
Now shares are testing a key breakout level at $180.
The pattern in play for ILMN is a cup and handle, a classic bullish price setup that's formed by a cup-shaped rounding bottom in shares that's followed up by a short-duration channel down. The buy signal comes on a move through the pattern's price ceiling at $180. Why all of that significance at that level? 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 Illumina's stock.
The $180 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 $180 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Johnson & Johnson
Health care giant Johnson & Johnson (JNJ) just came off a health scare itself: Shares of the $290 billion firm were looking "toppy" heading into this summer, threatening the possibility of a big reversal in this year's double-digit rally. Luckily for JNJ bulls, the downside setup never triggered. And now, this quintessential blue chip is showing off a textbook buy signal.
More important, you don't need to be an expert technical trader to see why.
JNJ caught a bid at $100 and then posted a higher high, establishing itself back in an uptrend for the first time since June. Now, as JNJ bounces off of trend line support for a second time, it makes sense to buy the bounce here.
$100 is an important psychological level for buyers in JNJ – and that makes it a logical place to keep a protective stop below when you buy. If JNJ suddenly can't catch a bid at $100 anymore, you don't want to own it.
Discover Financial Services
We're seeing the same setup in shares of payment card network Discover Financial Services (DFS) , with the big difference being that the uptrend in DFS is longer-term and better defined. With the latest bounce off of support confirmed this week, it makes sense to join buyers here.
It's pretty easy to see what's going on in this stock: every test of trend line support over the last year has been an ideal entry point to add onto a DFS position. More specifically, you don't just want to buy shares of Discover when they get near support – you want to buy the bounce off of trend line support.
Actually 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 DFS can actually still catch a bid along that line before you put your money on shares.
MasterCard (MA) is another big card payment network that's showing traders a bullish setup this week. While MA was one of the biggest momentum names of 2013, that performance flipped dramatically as soon as the calendar flipped to 2014, dragging shares on a protracted correction. But after being sold off for so long, MA is starting to look "bottomy" thanks to a classic bullish reversal pattern in shares.
MasterCard is currently in the final stages of forming an inverse head and shoulders pattern, a bullish setup that indicates exhaustion among sellers. You can spot the inverse head and shoulders by looking for 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 $78 resistance.
Momentum, measured by 14-day RSI, adds another piece of evidence for an upside reversal in MA: it's been making slightly higher lows over the course of the setup. That bullish divergence is an early warning signal that a buying opportunity could be coming up in MA, but it's critical not to click "buy" until the $78 level gets taken out by increasingly eager buyers. Until then, it's not a high-probability setup.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.