BALTIMORE (Stockpickr) -- If you bought the big S&P 500 Index a month ago -- maybe through an ETF such as the SPDR S&P 500 ETF (SPY), for instance -- the results wouldn't exactly be worth writing home over.
All told, the S&P is up a whopping 0.28% over that stretch. In other words, basically breakeven.
But that doesn't exactly mean that it's been a boring month for the big stocks in the index. Most investors probably don't realize that more than two-dozen large-cap S&P components actually rallied 10% or more over the past 30 days. A full 20% of S&P stocks are up at least a respectable 5% over that stretch. So, the message is pretty clear: even though the broad market isn't doing much right now, plenty of individual stocks are.
To find the big stocks with the most upside potential this week, we're turning to the charts for a technical take.
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.
Up first is $25 billion mobile chipmaker ARM Holdings (ARMH). ARM has had a solid start to 2015, rallying more than 16% since the calendar flipped to January. But don't worry if you've missed the move in ARMH so far – a bullish price setup in shares means that this big tech stock could be about to kick off a second leg higher this summer.
ARM Holdings is currently forming a pretty textbook ascending triangle pattern. The ascending triangle is a bullish continuation pattern that's formed by horizontal resistance above shares up at $54 and uptrending support to the downside. Basically, as ARMH bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout above our $54 price ceiling. When the breakout above $54 happens, we've got a buy signal.
(And shares are flirting with that level in today's session…)
Relative strength (not to be confused with RSI) adds some extra confidence to the ARMH trade right now. That's because our relative strength line has been in an uptrend going all the way back to last fall, an indication that ARMH 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, ARM Holdings is positioned to keep beating the S&P.
We're seeing the exact same price setup in another big tech sector stock this week: Oracle (ORCL). In the last few months, ORCL's price action has evolved into an ascending triangle setup much like the one in ARMH – for Oracle, the big breakout level to watch is resistance up at $45.
Why all of that significance at that $45 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in ORCL, 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 Oracle's stock.
The $45 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 $45 so significant – the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. It's important to be reactionary on this trade; just like with ARM Holdings, don't buy Oracle until buyers are able to shove this stock above resistance…
A secondary resistance level at $46 could be a stumbling point for ORCL on the way up, but it's not nearly as technically significant as our $45 breakout price.
Zurich-based banking company Credit Suisse (CS) is showing traders a triangle pattern of a different sort this week…
Credit Suisse is currently forming a symmetrical triangle, or "coil", pattern, a continuation setup that's formed by a pair of converging trend lines. Consolidation patterns like 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 $27 level. If shares can catch a bid above $27, then Credit Suisse is likely to see some new highs.
The tightening price range of CS' 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 CS is likely to happen fast (like the big breakout in mid-February). The 50-day moving average has been a pretty decent proxy for support in the last month. That makes it a logical place to park a protective stop after the move above $27 happens.
Good news -- you don't need to be an expert technical trader to figure out what's going on in $277 billion drug maker Novartis (NVS). Instead, the price action in this big pharma stock is about as simple as it gets. Here's how to trade it…
Novartis has been bouncing its way higher in a textbook uptrending channel since last fall, moving higher on every test of the bottom of that channel. The parallel trendlines on the chart have identified the high-probability range for shares of NVS to stay stuck within since October. That means, as shares come up off of support for the fourth time this week, it makes sense to buy the 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 Novartis can actually still catch a bid along that line before you put your money on shares.
Not every big stock setup we're looking at right now is an upside move – our sole short-side trade is showing up in Japanese telco NTT DoCoMo (DCM). Even though the Japanese equity markets have been on fire lately, and even though DCM has too (shares are up more than 24% year-to-date), it's time for longs to start thinking about taking gains here…
DCM is currently forming a classic head and shoulders pattern. The head and shoulders pattern is formed by two swing highs that top out at approximately the same level (the shoulders), separated by a higher high (the head). The sell signal comes on a move through DCM's neckline at $17.50.
Momentum, measured by 14-day RSI, adds an extra red flag to the price action in DCM. Our momentum gauge has been in a downtrend since February, making lower highs on each of the three price peaks in NTT DoCoMo's head and shoulders pattern. That's a bearish divergence that indicates buying pressure is weakening. Remember, if that $17.50 level gets violated, then it's time to sell (or short) this big overseas telco.