BALTIMORE (Stockpickr) -- June rate hike? Maybe not so much. That's the message from the Federal Reserve's April policy-setting committee meeting minutes, which were released yesterday.
U.S. markets rallied hard on the news before giving back those gains by the time the closing bell rang. Put simply, nothing is changing near-term -- and that could be a very good thing for stocks.
After all, we're still in the same Fed-propelled environment that's helped to spur a generational rally in big indices like the S&P 500 and the Dow Jones Industrial Average, and as long as capital remains cheap, that trajectory isn't likely to change.
To take advantage of yesterday's news, we're turning to the stocks that look best positioned to participate in the next leg higher. So today, we're taking a look at five big-name stocks to trade for gains.
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.
We're starting small this week. Then again, small is a relative term. $9 billion chemical manufacturer Ashland (ASH) tips the scales as the smallest stock on our list from a market capitalization standpoint, but there's been nothing small about Ashland's price performance lately. In the last year, this stock has rallied more than 25%, just about doubling the performance in the rest of the S&P 500.
But don't worry if you missed the move in ASH. This stock looks ready for a second leg higher.
Ashland is currently forming a textbook ascending triangle pattern, a bullish price setup that's formed by horizontal resistance above shares at $130 and uptrending support to the downside. Basically, as ASH bounces between those two levels, it's been getting squeezed closer and closer to a breakout above our $130 price ceiling. When that happens, we've got a buy signal.
Technology giant Microsoft (MSFT) has been showing traders a triangle of a different sort in the last week or two.
Microsoft is currently forming a symmetrical triangle, or "coil," pattern, 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 $48.50 level. If shares can catch a bid above $48.50, then we've got a strong indication that the sideways trading is over and buyers are ready to pile back into MSFT.
The tightening price range of Microsoft's symmetrical triangle is setting shares up for a volatility squeeze. Since volatility is cyclical, periods of very low volatility are typically followed up by a swing to high volatility. That means that an upside breakout in Microsoft is likely to happen fast (like the big breakout at the end of April. This stock has been pretty technically obedient lately, and that makes this week's bullish setup even more noteworthy now.
For more on Microsoft, check out Sham Gad's "Apple or Microsoft? How to Build a One-Stock Portfolio."
$10 billion consumer products maker Jarden (JAH) hasn't done much lately. In fact, since the end of February, this stock has actually done a whole lot of nothing, churning sideways over that three-month stretch. But that's not necessarily a bad thing. In fact, that sideways price action is precisely what makes JAH look tradable right now. Here's why.
The sideways price action in JAH is a "rectangle" pattern. It gets its name because the pattern basically "boxes in" shares between those support and resistance lines. For Jarden, the levels to watch are resistance up at $54 and support at $51. It pays to be reactionary with this price chart -- after all, rectangles are "if/then patterns." Put a different way, if Jarden breaks out through resistance at $54, then traders have a buy signal. Otherwise, if the stock violates support at $51, then the high-probability trade is a sell.
Because Jarden's price action leading up to the rectangle was bullish, there's a higher likelihood for an upside breakout through $54. Why bother waiting for the breakout then? Simple: Technical analysis is a risk management tool, not a crystal ball. We won't know that buyers have definitively taken control of JAH until they can muster the strength to shove it up above $54. Think of it as trading a small piece of your potential gain in exchange for a much higher probability of a profitable trade.
It's been a rough month to own China Mobile (CHL). Since the last week of April, this $277 billion Chinese mobile carrier has lost 10% of its market value, dropping like a rock during a stretch when the S&P 500 has actually been slightly up. The good news is that it's a little too early to call it quits on CHL -- and you don't need to be an expert technical trader to figure out why.
China Mobile has been bouncing its way higher in a textbook uptrending channel since last fall, 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 CHL to stay stuck within. That means, with this stock touching the bottom of the channel for the fifth 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 CHL can actually still catch a bid along that line before you put your money on shares.
Relative strength (not to be confused with RSI) adds some extra confidence to the CHL trade right now. Our relative strength line has been in an uptrend going all the way back to last summer, an indication that CHL 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, China Mobile is positioned to beat the S&P.
United Parcel Service
Last up on our list is United Parcel Service (UPS). After selling off hard on rough earnings earlier this year, UPS is finally starting to look "bottomy." Here's how to trade it.
UPS is currently forming an 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 at $102.
Momentum is an important add-on indicator on this chart too – 14-day RSI made higher lows on each of the troughs in UPS' inverse head and shoulders setup. That's a bullish divergence that indicates buyers have been building in this stock. If $102 gets taken out, then it's time to buy the reversal in UPS.
For another take on UPS, check out "Why FedEx Is Better Set to Deliver for Investors Than UPS" -- and Jim Cramer says the stock is a big buy.