BALTIMORE (Stockpickr) -- If there's been a single word to describe stocks with heavy commodity exposure in the last six months or so, it's probably "trainwreck." With few exceptions, most miners, drillers, diggers and transporters have gotten slammed since the middle of 2014. They all sport pretty much the same chart right now, too: down and to the right.
But that doesn't mean that you should wipe these names off of your radar just yet.
That's because, after months of being dragged lower, commodity-centric stocks are starting to diverge from one another. And a select group of stocks is actually starting to look "bottomy" here.
To grab ahold of a potential rebound this spring, we're breaking out the charts, taking a closer look at five commodity sector stocks to trade for gains as we plow into March.
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.
Chinese national oil company PetroChina (PTR - Get Report) has actually been showing some semblance of strength for a little while now, at least compared with its peers. For instance, while the SPDR Energy Select Sector ETF (XLE) has shed more than 9.3% over the last three months, PetroChina has only dipped by 2.2%. It's a start anyway.
Zoom out on the chart, and PTR's price action suddenly looks a whole lot more constructive.
PetroChina is currently forming an ascending triangle bottom, a bullish price setup that's formed by horizontal resistance above shares at $115 and uptrending support to the downside. Basically, as PTR bounces in between those two technically important price levels, it's been getting squeezed closer to a breakout above our $115 price ceiling. When that happens, we've got our buy signal.
Momentum, measured by 14-day RSI at the top of the chart, adds some extra confidence to PetroChina's upside. Our momentum gauge has been in an uptrend since PTR's price bottomed, an indication that buying pressure is quietly building in shares. Even so, it's critical to wait for a confirmed breakout above $115 before putting money long PTR -- shares have flirted with that price level repeatedly in the past. This pattern has been in "setup mode" for a while now, but it continues to look buyable on a move above $115.
Shell Midstream Partners
Midstream energy stocks have taken the least of the impact from crashing energy prices in 2015. Because they're exposed to transportation volumes rather than commodity prices themselves, they've been the starts of the sector lately. But Shell Midstream Partners (SHLX - Get Report) is showing traders an especially bullish price setup here. Like PTR, it's forming an ascending triangle pattern, in this case with a breakout level at $42.
Why all of that significance at that $42 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in SHLX, 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 Shell Midstream's stock.
The $42 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 $42 so significant. The move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Wait for shares to catch a bid above $42 before you buy Shell Midstream.
Pittsburgh-based PPG Industries (PPG - Get Report) doesn't pull commodities out of the ground, but it is inextricably tied to them thanks to its status as a basic materials sector giant. PPG has been one of the best-performing names on our list today, rallying more than 24% over the last 12 months. But now a breakout in shares points to even higher ground in 2015.
PPG spent the last few months consolidating sideways in a rectangle pattern. The rectangle gets its name because it "boxes in" shares in between a pair of parallel resistance and support lines. For PPG, resistance was up at $227.50 and support was down at $220. Consolidation setups such as this one are common after big moves, and since PPG's prior trend was up before shares started chugging sideways, a breakout above $227.50 was the likely outcome. It happened last week.
Since then, shares have spent a few sessions consolidating again just above the rectangle. Meanwhile, volatility has been tumbling thanks to the extremely low price range that PPG has remained within, opening the door to a volatility squeeze in March. PPG is sitting at new highs with a fresh breakout behind it, and now looks like a good time to scale into a position.
Contract oil and gas driller Rowan (RDC) is another stock that's starting to look "bottomy" after a prolonged selloff. Rowan has shed more than 25% of its market value in the last 12 months, dropping in price as investors grew concerned that low oil prices could stymie drill site growth. But a classic reversal pattern suggests that the sellers are finally starting to get tired in Rowan. Here's how to trade it.
RDC has spent the last several months forming a long-term inverse head and shoulders pattern. 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 $25 level in RDC.
Shares are within grabbing distance of that $25 breakout level today.
Momentum adds some confirmation to the buying pressure that's starting to build in RDC now. RSI has been in an uptrend since the pattern started forming, making higher lows even while this stock's price dug lower in the pattern. Wait for $25 to get taken out definitively before you buy RDC.
The chart for Barrick Gold (ABX) is about as "textbook" as they get. Just like RDC, it's forming an inverse head and shoulders pattern, in this case with a neckline at $13. While gold is a commodity, it really behaves much more like a currency, and that makes it incredibly tradable from a technical standpoint. Now the message is pretty clear: a move above $13 is a buy signal.
Relative strength is the side indicator to watch in shares of Barrick Gold right now. While relative strength was in a downtrend through the start of 2015, it actually broke that downtrend and reversed into an uptrend when the calendar flipped to January. As long as the new uptrend in relative strength remains intact, this stock should start meaningfully outperforming the S&P.
When the $13 breakout happens, the 50-day moving average is a logical place to park a protective stop loss.
-- Written by Jonas Elmerraji in Baltimore.