BALTIMORE (Stockpickr) -- European Central Bank President Mario Draghi essentially high-fived Mr. Market yesterday, commenting that the central bank's $1.2 trillion in QE initiatives were working and that they would continue on course. European and U.S. equity markets reacted by moving higher.
All told, the big S&P 500 index added 0.21% yesterday, tacking on a bit to the 2.9% that the index has managed to appreciate so far this year.
Market performance has been anemic in 2015, particularly compared with the double-digit rallies we've enjoyed in the last couple of years. But it's a mistake to think that stocks aren't really doing much of anything in general. Some of Wall Street's biggest names have been showing some equally big performance since the calendar flipped to January.
Today, we're turning to the charts for a closer technical look at five big 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.
Up first is Chinese internet commerce stock JD.com (JD - Get Report). So far, 2015 has been a pretty good year for JD.com. Shares are up about 51% since the calendar flipped to January, utterly stomping the S&P 500 by comparison. But don't worry if you've missed the move in JD.com so far. This big Chinese tech stock looks ready to kick off a second leg higher in June.
That's because JD is currently forming a textbook ascending triangle pattern, a price setup that's formed by horizontal resistance up above shares at $35, and uptrending support to the downside. Basically, as JD bounces in between those two technically-significant price levels, it's been getting squeezed closer and closer to a breakout above our $35 price ceiling. When that breakout happens, we've got our buy signal.
Relative strength (not to be confused with RSI) adds some extra confidence to the JD.com trade right now. That's because our relative strength line has been in an uptrend going all the way back to December, an indication that JD 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, JD is positioned to keep beating the S&P.
We're seeing the exact same setup in shares of tobacco company Reynolds American (RAI) right now. Like JD.com, Reynolds American is currently forming a pretty textbook ascending triangle pattern with a short-to-intermediate-term time horizon. For RAI, the big breakout level to watch is resistance up at $78.
Why all of that significance at that $78 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in Reynolds American, 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 Reynolds' stock.
The $78 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 $78 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. Don't buyReynolds American until buyers are able to shove this stock above resistance.
E-commerce behemoth Amazon.com (AMZN - Get Report) has been having a monster year in 2015. Since the calendar flipped to January, this big tech stock has managed to rally more than 40%, performance that means this single stock adds up to about 9% of the S&P 500's overall performance this year. The stock could be ready to deliver even more gains to investors in the second half of the year.
Amazon is forming a rounding bottom pattern, a bullish price setup that looks just like it sounds. The rounding bottom indicates a gradual transition in control from sellers to buyers -- and while it's typically a reversal pattern that comes at the bottom of a down-move, Amazon's chart is showing us a rounding bottom at the top of this stock's recent rally. That's just fine. Even though the setup isn't exactly textbook, the trading implications are exactly the same in Amazon. The buy signal comes on a breakout above $440 resistance.
For traders who've been watching this stock for a while, Amazon's price action should be a bit of deja vu. That's because we saw a similar rounding bottom pattern following a gap higher back in the first quarter of the year. If shares can muster the strength to move back above $440, then it's time to buy.
Now looks like a good time to be a buyer in personal product maker Unilever (UL) -- and the good news is that you don't need to be an expert technical trader to figure out why. Instead, the price action in this big consumer name is about as basic as it gets. UL has been a "buy-the-dips stock" going back to the start of the year, and shares just showed traders a big dip this week.
Unilever 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 trend lines on the chart have identified the high-probability range for shares of UL to stay stuck within since all year long. That means that 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 UL can actually still catch a bid along that line before you put your money on shares.
Needless to say, the energy sector has had a rough go of it over the course of the last year or so. But some energy names are starting to show signs of a reversal, and BP is one of them. In fact, the breakout in BP actually came back in mid-April, when shares broke out of a classic inverse head and shoulders pattern, closing up above $41 resistance. But even though the breakout move came a month and a half ago, a throwback is giving traders a second chance at a low-risk entry on the BP trade.
A throwback happens when a stock breaks out, and then moves back down to test newfound support at that former price ceiling level -- in this case, our $41 price level. And while throwbacks look ominous, they’re actually constructive for stock prices because they re-verify the stock’s ability to catch a bid at support. For that reason, it’s best to think of a throwback as a buying opportunity in BP, not a red flag. From a risk/reward standpoint, the optimal time to buy comes on the next bounce off of $41.
Momentum, measured by 14-day RSI, adds some extra confirmation to the upside setup in BP. That's because our momentum gauge has held onto its uptrend going all the way back to the start of the pattern, indication that buying pressure continues to build. If you decide to buy BP here, the 50-day moving average is a logical place to park a protective stop.