BALTIMORE (Stockpickr) -- Maybe there's some credence to the old stock market adage of "sell in May and go away" after all. Since the first of the month, the big S&P 500 index has shed 44 basis points.
That's not much of a correction on an absolute basis, but it does mean that this sideways stock market grind of 2015 appears to still be in full force this May.
The thing is, while the S&P 500 gives investors a sense of how "the market" is moving as a whole, it really hasn't been the best indicator of what's really been going on in the individual stocks lately. For instance, while the index is down about 0.44% in May, nearly two-thirds of the individual stocks in the index are actually up so far this month.
Even more promising, a bigger chunk of big S&P 500 components is getting closer to breakout territory this month. The stock indices may be grinding in 2015, but there are some definite pockets of performance to be had this year. To find them, we're turning to the charts today.
First, a little on the technical toolbox we're using here. 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 big stocks to trade this week.
Up first on the list is Apple (AAPL). Apple isn't just the biggest component in the S&P 500 -- it's also been one of its biggest performance contributors in 2015. In fact, year-to-date, Apple's 14% price rally has contributed about 26% of the S&P's overall move this year. The good news for Apple investors (and the rest of the market, apparently) is that this $725 billion behemoth looks ready to break out this summer.
Apple is currently forming a pretty textbook ascending triangle pattern, a bullish price setup that's formed by resistance up above shares (at $132.50), and uptrending support to the downside. Basically, as AAPL has bounced in between those two levels since February, it's been getting squeezed closer and closer to a breakout above that $132.50 price ceiling. When that breakout happens, we've got another big buy signal in AAPL.
Down at the bottom of the chart, relative strength (not to be confused with RSI, up top) is the side-indicator to watch right now. Our relative strength line has been in an uptrend going all the way back to last fall, an indication that AAPL isn't just moving higher, it's also outperforming the rest of the market long-term. As long as that uptrend in relative strength remains intact, AAPL is positioned to keep on dragging the S&P higher.
American Airlines Group
Plummeting jet fuel prices have been a major positive for airline stocks, and $33 billion air carrier American Airlines (AAL) has been no exception. Since shares bottomed back in October, this stock has rallied more than 70%. Now AAL looks bullish again, thanks to the same price setup as we just looked at in Apple.
For AAL, the ascending triangle breakout happens on a move above $55.
Why all of that significance at that $55 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle pattern in American Airlines, 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 AAL's stock.
The $55 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 $55 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
It hasn't happened yet, though. For the best risk/reward tradeoff, wait for shares to catch a bid above $55 before you buy AAL.
We're seeing pattern of a different sort in shares of tobacco giant Altria Group (MO). Long-term, Altria has been no slouch performance-wise – shares of this $100 billion cigarette maker have rallied almost 27% in the last 12 months. And now, a symmetrical triangle is identifying another upside trade in MO.
Altria's symmetrical triangle, or "coil," pattern is a bullish continuation setup that's formed by a pair of converging trend lines. Consolidation patterns such as the symmetrical triangle are common after big moves -- they give investors a chance to catch their breath and figure out their next step. The buy signal comes on a breakout to the topside of the pattern, currently right at the $52 level. If shares can catch a bid above $52, then we've got a strong indication that the sideways trading is over and buyers are ready to step up their trading in Altria.
When you look at Altria's chart, think "volatility squeeze." Since volatility is cyclical, periods of very low volatility are typically followed up by a swing to high volatility. That means that MO's breakout is likely to be very fast. Don’t miss it.
Meanwhile, things haven't looked so hot lately for shares of payment network American Express (AXP). Since the start of the year, AmEx has stumbled more than 14%, underperforming pretty significantly in a market where performance has been hard to come by. But it looks like long-suffering shareholders could be about to catch a break as AmEx finds a bottom.
American Express is currently forming a double bottom pattern, a bullish reversal pattern that looks just like it sounds. The setup is formed by a pair of swing lows that find support at approximately the same price level. The buy signal comes on a breakout through the peak that separates though two troughs. For AXP, that's the $83 resistance level.
Momentum, measured by 14-day RSI, adds some extra upside confidence to the AmEx trade. Our momentum gauge has been in an uptrend since February, making higher lows during AXP's pair of price lows. That's a bullish divergence that indicates that buying pressure has been building under the surface. When $83 gets taken out, American Express becomes a buy again.
Last up on our list of big stocks to trade for gains is Progressive (PGR), the $16 billion insurance holding company. The good news is that you don't need to be an expert technical trader to figure out what's been going on with this chart. In fact, the price setup is about as simple as they get right now.
Progressive has been bouncing its way higher in a textbook uptrending channel since last summer, reversing higher on every test of the bottom of the channel. The parallel trendlines on the chart identify the high-probability range for shares of PGR to stay stuck within. That means that with this stock touching the bottom of the channel for the sixth time this week, it makes sense to buy the next bounce.
Waiting for that bounce is important for two key reasons: It's the spot where shares have the most room 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 the channel breaks, and you know you're wrong). Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring PGR can actually still catch a bid along that line before you put your money on shares.
We could see our buy signal in PGR in today's session.