That wasn't as much the case last year, when a buoyant market helped lift just about any name trading on a big index. But this year, with the S&P up 7% year-to-date, there's a much wider gap between the leaders and the laggards. In fact, more than 41% of the S&P 500's performance this year boils down to just 10 high-performing large-caps.
That's why, as we approach the end of the year, it makes sense to focus on the momentum movers and leave everything else alone.
So today, we're taking a closer technical look at five momentum stocks that look ready to spring higher before the calendar flips to 2015.
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 Pilgrim's Pride (PPC) , an $8 billion chicken producer that's been on a tear in 2014. Since the start of the year, positive earnings numbers have helped to propel PPC up more than 89% -- but don't worry if you've missed the move here. PPC looks ready to launch on another leg higher this fall.
That's because PPC is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares at $32 and uptrending support to the downside. Basically, as PPC bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to that $32 price ceiling. A breakout above that high-water mark is our buy signal in PPC.
The setup in PPC has also given this stock a chance to bleed off some overbought momentum -- 14-day RSI went from above its upper band back down to neutral, a positive sign just before a breakout. That neutral reading means that PPC has plenty of room to run higher before becoming overbought again.
Wait for $32 to get taken out by buyers before taking a position in PPC.
Mid-cap REIT Taubman Centers (TCO) is another breakout trade to watch this week. TCO has been one of the better-positioned REITs in the face of the recent stock correction, and after handing out 17.4% in total returns since the start of the year, $77 is the line in the sand to watch now.
Taubman has spent the last few months sideways, but that's not a bad thing. The sideways action in TCO is forming a rectangle pattern, a consolidation setup formed by a pair of horizontal resistance and support levels that basically "box in" shares between $77 and $72. Consolidations like the one in TCO are common after big moves (like the one that started in January); they give the stock a chance to bleed off momentum as buyers and sellers figure out their next move.
Rectangles are "if/then patterns": If Taubman breaks out through resistance at $77, then traders have a buy signal. Otherwise, if the stock violates support at $72, then the high-probability trade is a sell. Since this stock's price action leading up to the rectangle was an uptrend, it favors breaking out above $77.
Healthcare firm Centene (CNC) is already in breakout mode this week, after busting through a key resistance level at $82 last week. Centene had been forming a rounding bottom setup for the past three months, showing traders a pattern that looks just like it sounds. The rounding bottom indicates a gradual shift in control from sellers to buyers, and the move through $82 was the signal that it was time to pick up shares.
Why all of that significance at that level? It all comes down to buyers and sellers. Price patterns like the ascending triangle or rounding bottom 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 CNC's stock.
The $82 resistance level was 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 had been to buy. That's what made the breakout above $86 so significant last week -- the move means that buyers were finally strong enough to absorb all of the excess supply above that price level.
Micron Technology (MU) has been the poster child for bullish momentum in the tech sector this year: since January's trading kicked off, this flash memory maker is up more than 58%. Even better, it's been a predictable name to trade. For going on two years, Micron has been a "buy-the-dips stock," and the good news is that we're getting a new dip to buy into this week.
When I say that MU's price action has been predictable, it's because this stock has been bouncing its way higher in a well defined uptrending channel, a setup formed by a pair of parallel trend lines in shares. Those trend lines identify the high-probability range for shares to trade within, and buying at the lower line has worked incredibly well over the course of this setup. So with shares bouncing again this week, it makes sense to get in here.
Relative strength is the side indicator that's adding confidence to upside in Micron here: the relative strength line has been in an uptrend of its for more than a year, indicating that this name is outperforming the S&P 500 in good times and bad ones. As long as that uptrend remains intact, Micron should keep doing better than the broad market.
We're seeing the exact same setup in shares of Microsoft (MSFT) right now, the big difference being that MSFT isn't quite as far along as Micron. That means that there's time to be earlier on the Microsoft trade this week. Just wait for the bounce off of trend line support before you buy.
Waiting for this week's 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 MSFT can actually still catch a bid along that line before you put your money on shares.
The 50-day moving average has been a good proxy for support over the course of this uptrend. I'd recommend putting a protective stop on the other side of it.
To see this week's trades in action, check out the Must-See Charts portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.