BALTIMORE (Stockpickr) -- What's the best-performing big stock index this year? I'll give you a hint: It's not the S&P 500, the Dow Jones Industrial Average or even the Nasdaq 100.
No, to find the best performance in 2015, you have to look overseas.
Despite pressure from a rising dollar, foreign stocks have actually shown some serious strength this year. Since the calendar flipped to January, Italy's FTSE MIB Index is up more than 11%. The Swiss Market Index is up more than 8%. And Japan's Nikkei-225 has rallied a whopping 12% year-to-date. And that could all just be the beginning. Some foreign stocks look ready to extend their gains in 2015.
That's why, today, we're taking this technical look at five foreign stocks that look ready to break out. The good news is that you can buy all five in your U.S.-based brokerage account; all have shares that trade on domestic exchanges.
To figure out which foreign stocks trade, we're turning to the charts for a technical look.
For the unfamiliar, technical analysis is a way for investors to quantify qualitative factors, such as investor psychology, based on a stock's price action and trends. Once the domain of cloistered trading teams on Wall Street, technicals can help top traders make consistently profitable trades and can aid fundamental investors in better planning their stock execution.
Without further ado, let's take a look at five technical setups worth trading now.
Up first is $8 billion Brazilian paper manufacturer Fibria Celulose (FBR). FBR has shown U.S. investors a stellar run so far in 2015. Since the start of the year, this big paper stock has rallied more than 14%, beating the S&P 500's nearly flat price performance by a huge margin.
But don't worry if you've missed the move in FBR; shares look ready to kick off a second leg higher this summer.
Fibria Celulose is currently forming an ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares at $14.75 and uptrending support to the downside. Basically, as FBR bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout above that $14.75 price ceiling. When that happens, we've got our next buy signal.
Relative Strength, (not to be confused with RSI) adds some extra evidence to the upside in FBR right now. That's because relative strength has been in an uptrend of its own since last summer, which confirms that this stock isn't just moving higher -- it's also outperforming the rest of the market long-term. As long as that relative strength uptrend remains intact, expect FBR to keep on beating the rest of the market too.
We're seeing a similar setup in another big Brazilian stock right now: $18 billion food company BRF (BRFS). Brazil and the recent price action might be the only two things that BRF has in common with Fibria Celulose – this food maker is down almost 10% in 2015, lagging most other stocks materially over that stretch. But the important thing here is the fact that a breakout above $22 resistance triggers an ascending triangle bottom in BRFS.
Even though BRFS' price pattern isn't quite as "textbook" as the one in FBR, the trading implications are exactly the same on a breakout above $22.
Why all of that significance at that $22 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in BRF SA, 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 BRF's stock.
The $22 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 $22 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 buy BRFS until buyers are able to shove this stock above resistance.
German enterprise software firm SAP (SAP) is another gigantic foreign stock that's been beating the market this year. This $91 billion firm has managed to climb more than 15% higher since shares bottomed at the end of January, and it's been taking a breather in the last month and a half. Don't worry about the sideways churn in SAP lately -- it's that sideways action that makes shares tradable here.
The sideways price action in SAP is a "rectangle" pattern. It gets its name because the pattern basically "boxes in" shares between those support and resistance lines. For SAP, the levels to watch are resistance up at $76.50 and support at $73. It pays to be reactionary with this price chart, after all, rectangles are "if/then patterns". Put a different way, if SAP breaks out through resistance at $76.50, then traders have a buy signal. Otherwise, if the stock violates support at $73, then the high-probability trade is a sell.
Because SAP's prior trend was up, it favors breaking out above $73.50. The 50-day moving average has been acting like a decent proxy for support in recent sessions. Once SAP triggers a buy, the 50-day makes a logical place to park a protective stop.
$11 billion Swedish automotive safety system maker Autoliv (ALV) looks bullish right now -- and the good news is that you don't need to be an expert technical trader to figure out why. A quick glance at this chart should tell you pretty much everything you need to know about buying ALV right now. Here's how to trade it:
Autoliv has been making its way higher in an uptrending channel since last fall, bouncing on each touch of trend line support. That channel is formed by a pair of parallel trendlines that identify the high-probability range for shares of ALV to stay within. Put another way, every test of the bottom of the channel has been a low-risk, high-reward opportunity to get into Autoliv, and as shares test support for an eighth time now, it makes sense to buy the next bounce higher.
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 this bounce to happen first, you're ensuring ALV can actually still catch a bid along that line before you put your money on shares.
If you decide to buy the bounce in ALV, put your stop on the other side of the 50-day moving average; if shares violate that line, the uptrend is over and you don't want to own it anymore.
Qihoo 360 Technology
Last up on our list of bullish foreign stocks is Chinese internet company Qihoo 360 Technology (QIHU). After selling off more than 28% over the course of the last year, this $8 billion stock is finally starting to look "bottomy" in the long-term. And shares are testing a major breakout level this week.
QIHU 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. For QIHU, that's up at $65.
Lest you think that the head and shoulders is too well known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." That’s good reason to keep a very close eye on QIHU's $65 level in the next few trading sessions.