How to Trade the Market's Most Active Stocks

BALTIMORE (Stockpickr) -- Put down the 10-K filings and the stock screeners. It's time to take a break from the traditional methods of generating investment ideas. Instead, let the crowd do it for you.

From hedge funds to individual investors, scores of market participants are turning to social media to figure out which stocks are worth watching. It's a concept that's known as "crowdsourcing," and it uses the masses to identify emerging trends in the market.

Crowdsourcing has long been a popular tool for the advertising industry, but it also makes a lot of sense as an investment tool. After all, the market is completely driven by the supply and demand, so it can be valuable to see what names are trending among the crowd.

While some fund managers are already trying to leverage social media resources like Twitter to find algorithmic trading opportunities, for most investors, crowdsourcing works best as a starting point for investors who want a starting point in their analysis.

Today, we'll leverage the power of the crowd to take a look at some of the most active stocks on the market today.

Yum! Brands

Nearest Resistance: N/A
Nearest Support: $87
Catalyst: Hedge Fund Stakes

Fast food chain Yum! Brands (YUM) jumped almost 6% on Friday, boosted by the announcement that hedge funds Third Point and Corvex Management had built big positions in the $37 billion restaurateur. That's more than just a sign of approval. Investors piled into Yum! at the end of last week in hopes that Third Point founder Dan Loeb or Corvex chief Keith Meister could help boost YUM's share price through activist moves. Shares hit new highs on the disclosures.

Making new highs is significant from an investor psychology standpoint because it means that everyone who has bought shares in the last year is sitting on gains. As a result, the "back to even" mentality is less of a concern than it would be for a name with a higher proportion of shareholders sitting on losses. For traders who want to ride the bullish momentum, there's still time to build a position in YUM now.

Chesapeake Energy


Nearest Resistance: $16
Nearest Support: $14.50
Catalyst: Technical Setup

Large-cap natural gas company Chesapeake Energy  (CHK) ended Friday's session testing a key technical level, gaining 4.88% over the course of the day to end just above key $16 support. The big-volume mover has been in rebound mode in the last few sessions, kicked higher by a double-digit rally in nat gas prices.

But the technicals were a critical driver of some of Friday's highs volume session. If CHK can definitively hold above $16 to start this week, consider it a buy signal for nimble traders.

Altera


Nearest Resistance: $45
Nearest Support: $40
Catalyst: Standstill Period Speculation

Semiconductor company Altera (ALTR) rallied almost 10% on Friday, boosted by talk that the end of a contractual standstill period with Intel (INTC) will hit on June 1, leaving the larger microchip behemoth free to make a hostile bid for ALTR. The possibility for a higher bid price for ALTR shareholders drove the price action in shares.

While Altera is testing prior highs on the news, there's a lot of headline risk surrounding a potential M&A deal right now. ALTR looks more like a lottery ticket and less like a high-probability trade right now.

Gilead Sciences


Nearest Resistance: $105
Nearest Support: $100
Catalyst: Q1 Earnings

Finally, $150 billion biopharmaceutical stock Gilead Sciences (GILD) saw big volume last week thanks to its first-quarter earnings call after the bell on Thursday. Not counting one-time charges, Gilead earned $2.94 per share, coming in well ahead of the $2.32 per share average estimate on Wall Street. Shares moved 4.48% higher in Friday's session in reaction to the numbers.

Gilead looks solid from a technical standpoint right now. Shares have been bumping their head on $105 resistance for most of 2015, and we're flirting with that level again as we head into the new week. While there's been a lot of talk about a biotech correction in the last week, GILD suddenly looks very buyable if it can break out above $105 this week.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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