BALTIMORE (Stockpickr) -- U.S. stocks are finally catching a bid. The big S&P 500 index rallied 1.2% by the time Wednesday's closing bell rang and is ticking up another 0.3% this morning. Despite the big move higher, volatility remains exceptionally low in the broad market right now. In fact, volatility, measured by the VIX Volatility Index, is the lowest it's been in decades.
That may sound like a good thing. After all, volatile markets are bad for investors, right? Not exactly.
In reality, low volatility is a double-edged sword. When markets don't budge, they can't move higher either. And that's how you end up with a market that's only up 2% almost half-way through 2015. So far this year, the S&P has spent the vast majority of its time grinding sideways, moving a maximum of just 6.5% from trough to peak.
There's good news, though. While the big market indices aren't doing much right now, when you zoom in to an individual stock level, some of Wall Street's biggest names are actually making some meaningful gains in 2015.
That's why, 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: technical analysis is 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.
Salesforce.com (CRM) has been a perfect example of a large-cap stock that's making moves this year. This the calendar flipped to 2015, Salesforce has rallied more than 23%, leaving the rest of the S&P 500 in its dust.
But don't worry if you've missed the move in Salesforce. Shares look primed to make a second leg higher this summer.
Salesforce is currently forming a pretty textbook ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance above shares (in this case up at $75), and uptrending support to the downside. Basically, as Salesforce bounces between those two technically-significant price levels, it's been getting squeezed closer and closer to a breakout above our $75 price ceiling. When that happens, we've got a buy signal.
Relative strength (not to be confused with RSI) adds some extra confidence to the Salesforce trade right now. That's because our relative strength line has been in an uptrend going all the way back to January, an indication that Salesforce is still outperforming the rest of the market in the long-term. As long as that uptrend in relative strength remains intact, Salesforce is positioned to keep beating the S&P.
We're seeing the same setup in shares of health care firm Medtronic (MDT) right now. Like Salesforce, Medtronic is forming a pretty textbook ascending triangle pattern, in this case with resistance up at $79. A move above that $79 level means that it's time to buy.
Why all of that significance at that $79 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in Medtronic, 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 Medtronic's stock.
The $79 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 $79 so significant – the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Like with any breakout trade, it's important to be reactionary here; don't buy Medtronic until buyers are able to shove this stock above resistance.
Shares of media company CBS (CBS) haven't done much lately. Over the last three months, this $29 billion entertainment company has basically traded board-flat, making investors wonder if they're ever going to see a meaningful move. In short, CBS looks likely to start getting some traction in the near-term. And ironically, it's that sideways churn in CBS' share price that makes this stock tradable this summer.
The sideways price action in CBS is a rectangle pattern. It gets its name because the pattern basically "boxes in" shares between horizontal support and resistance lines. For CBS, the levels to watch are resistance up at $63.50 and support at $59. Rectangles are "if/then patterns" -- put a different way, if CBS breaks out through resistance at $63.50, then traders have a buy signal. Otherwise, if the stock violates support at $59, then the high-probability trade is a sell.
Because CBS' prior trend was up, it favors breaking out above $63.50. Still, it's important to be reactionary and wait for CBS shares to exit the rectangle before you take sides on this trade – technical analysis is a risk management tool, not a crystal ball, and this doesn't become a high-probability buy until our price ceiling gets taken out.
At a glance, mega-cap pharmaceutical company Merck (MRK) looks like it's been all over the place in 2015 – but more recently (since March, that is), the price action at Merck has started looking a whole lot more orderly. Now, Merck has become a "buy the dips stock". And shares gave us a big, buyable dip in yesterday's trading session.
Merck has been bouncing its way higher in a textbook uptrending channel since last fall, moving up on every test of the bottom of that channel. The parallel trendlines on the chart have identified the high-probability range for shares of Merck to stay stuck within since all year long. That means, as shares come up off of support for the fifth 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 Merck can actually still catch a bid along that line before you put your money on shares.
Last up on our list of large-cap trades is $12 billion apparel and accessory company Ralph Lauren (RL). Ralph Lauren has gotten absolutely shellacked in 2015, down more than 26% since the calendar flipped to January. But the good news is that long-suffering shareholders could be in store for an about-face in this big brand. Ralph Lauren is starting to look "bottomy" this summer.
Ralph Lauren is 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 Ralph Lauren, that's the $140 resistance level.
Momentum, measured by 14-day RSI, adds some extra upside confidence to the setup in Ralph Lauren. Our momentum gauge has been in an uptrend since February, making higher lows during this stock's pair of price lows. That's a bullish divergence that indicates that buying pressure has been building under the surface. When $140 gets taken out, Ralph Lauren becomes a buy again.