BALTIMORE ( Stockpickr) -- 2015 hasn't exactly shown investors an auspicious start -- since the New Year's first trading session kicked off on Friday, stocks have shed more than 2%. So yes, for the first time in six years now, the big U.S. market indices are on track to post a loss for the year.
The good news is that it's nothing new.
Last year kicked off with a particularly abrupt correction, the S&P 500 tumbling 3.5% over the course of January 2014 only to reverse course and hand investors double-digit gains by the time December rolled around. Likewise, if you ignore the big indices now and stick to the individual names, we're seeing some constructive price action again in early 2015.
That's why, today, we're turning to the charts for a closer technical look at five stocks that look ready for breakout gains in January…
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 $2 billion tech name Blackbaud (BLKB - Get Report) , a stock that's been on a tear over the course of the last seven months. Since May, Blackbaud has rallied 40%, besting the S&P 500's performance over that stretch by a big margin. But don't worry if you missed the move in this stock -- shares look primed to kick off on a second leg of their rally in the New Year.
Blackbaud is currently forming a textbook ascending triangle setup, a bullish continuation pattern. The ascending triangle in BLKB is formed by horizontal support above shares at $45 and uptrending support to the downside. Basically, as BLKB bounces in between those two technically significant price levels, shares are getting squeezed closer and closer to a breakout above their $45 price ceiling. When that happens, we've got our buy signal.
Relative strength has been a solid upside indicator in shares of Blackbaud in recent months. Just like this stock's price level, our relative strength line at the bottom of the chart has also been moving higher. That's our indication that BLKB isn't just moving up -- it's also outperforming the rest of the market along the way. As long as that uptrend in relative strength remains intact, BLKB should continue to outperform the S&P.
Wait for $45 to get taken out, then buy.
We're seeing the exact same setup in small-cap publicly-traded salon company Regis Corp. (RGS - Get Report) -- albeit slightly longer-term. Like Blackbaud, Regis is currently forming an ascending triangle setup, in this case with resistance at the $17.50 level. A close above that $17.50 price tag signals a buy in RGS.
Why all of that significance at that $17.50 level? It all comes down to buyers and sellers. Price patterns like the ascending triangle 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 Regis' stock.
The $17.50 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 $17.50 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
The last few months haven't been a particularly attractive time to own shares of Manitowoc (MTW - Get Report) -- since July, this $3 billion heavy equipment maker has shed 38% of its market value. And we're seeing even more selling this week. But don't let yesterday's nasty correction in MTW fool you; shares are looking "bottomy" here after an important breakout from last week.
Manitowoc spent the last few months forming a double bottom pattern, a bullish reversal pattern that looks just like it sounds. MTW's double bottom was formed by a pair of swing lows that found a price floor at approximately the same level -- the push through $21 resistance was the signal that the pattern was in play. This week, a throwback is giving traders a second chance at a low-risk entry in MTW.
A throwback happens when a stock breaks out, and then moves back down to test newfound support at that former price ceiling level -- in this case at $21. And while throwbacks look ominous, they’re actually constructive for stock prices because they re-verify the stock’s ability to catch a bid at support. If MTW can re-capture that $21 price level on its next up day, it's still buyable.
Momentum, measured by 14-day RSI, is our side-indicator in MTW. RSI made higher lows at the same time that shares of MTW re-tested the same price floor -- that's a bullish divergence that signals building buying pressure.
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 Ball Corp (BLL - Get Report) -- instead, this setup is about as simple as they get. Ball kicked off a well-defined uptrend starting at the beginning of October. Since then, BLL has been a "buy the dips stock", bouncing higher on every test of trendline support.
So, as BLL comes down to test support for a sixth time since the fall, we're coming up on another very buyable bounce…
Ball's price channel may not be long established, but it's provided a high-probability range for shares to stay stuck within over the course of the past quarter. For early 2015, the high probability money comes on betting that BLL stays in that well-defined price channel. Just be sure to wait for a bounce before you buy.
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 BLL can actually still catch a bid along that line before you put your money on shares.
Moelis & Co.
Up last on our list of breakout trades is Moelis & Co. (MC - Get Report) , a $2 billion investment bank. It's not surprising MC has been trending higher -- as global asset prices and deal values drive up over the course of this rally, so too do the transactions that MC earns its fee revenues on. We haven't seen recent asset performance parlayed into MC's price -- this stock has been churning sideways for months now.
But that sideways action is setting the stage for a key breakout in January…
That's because MC is currently 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 (that's the $35.50 price level in MC).
Lest you think that the inverse head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant."
That's good reason to keep an eye on the $35.50 level in Moelis & Co. this week.
-- Written by Jonas Elmerraji in Baltimore.
At the time of publication, author had no positions in the names mentioned.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji