Updated with comments from Jim Cramer.
During the central bank's news conference yesterday afternoon, Fed boss Janet Yellen said that jobs improvement was a big factor in deciding that the economy can handle a gradual interest rate hike starting this year.
Don't hold your breath. The Fed isn't in agreement on when it will be appropriate to raise rates. Still, investors reacted by hitting the buy button, pushing all three of the big stock market averages back around where they started when the market opened.
Investors have been wringing their hands about the Fed's next move all week long. So now, with the big riddle solved (at least in the near-term), it makes sense to revisit some big breakout trades that have been heating up in recent weeks.
To do that, we're turning to the charts for a technical take on five of Wall Street's biggest stocks.
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.
Up first is tech giant Apple (AAPL). Apple has been a strong performer in 2015, rallying more than 15% since the calendar flipped to January. Just to put that in perspective, if you took all the other stocks out of the S&P 500 and just held cash in their place, Apple alone would still have generated about 70% of the S&P's rally year-to-date. That's pretty significant.
But don't worry if you've missed the move in Apple so far. This technology behemoth looks ready to kick off a second leg higher this summer.
"Apple is the cheapest stock I follow in part because people feel the growth is unsustainable and in part because they feel that it is overowned and played out," said TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio. "I do not bet against companies that sell at 12 times earnings (if you back out the cash) with a phenomenal balance sheet and terrific dividend boosts and buyback. I own them. Don't trade Apple, own it."
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Apple 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 $132.50), and uptrending support to the downside. Basically, as Apple bounces between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout above our $132.50 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 Apple trade right now. That's because our relative strength line has been in an uptrend going all the way back to last summer, an indication that Apple is consistently outperforming the rest of the market.
The Apple setup is long-term -- it's been shaping up since February -- and that comes with long-term trading implications once $132.50 gets taken out. When the breakout happens, the 50-day moving average becomes the spot to park a protective stop.
I also featured Apple yesterday in "5 Cash-Rich Stocks to Triple Your Gains."
Payment network Visa (V) is showing traders the same setup right now. For Visa, the ascending triangle pattern triggers on a push through resistance up at $70.
Why all of that significance at that $70 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle pattern in Visa, 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 Visa's stock.
The $70 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 $70 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 Visa until buyers are able to shove this stock above $70.
If you're perusing the stats, construction equipment maker Caterpillar (CAT) doesn't look so hot. This $52 billion industrial firm has seen its share price drop by 4.7% so far in 2015, underperforming at a time when performance has already been hard to come by. But zoom in on the chart, and Caterpillar's price setup starts to look a little more interesting. For instance, shares are actually up 10% since they bottomed back in April.
This week, Caterpillar looks tradable thanks to a triangle pattern of a different sort.
Caterpillar 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 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 $88 level. If shares can catch a bid above $88, then we've got a strong indication that the sideways trading is over and buyers are ready to step up their trading in Caterpillar.
One last consideration in Caterpillar is volatility. The constricting action of this stock's symmetrical triangle pattern 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 Caterpillar's initial move is likely to be very fast. Don’t miss it.
International Business Machines
Patience has been a virtue for shareholders in International Business Machines (IBM) Big Blue spent most of 2014 in "sell mode," and shares spent the first quarter of 2015 grinding away near multi-year lows. But, more recently, IBM has performed an about-face of sorts. Since February, it's been a "buy-the-dips stock" -- and you don't need to be any kind of expert trader to see why.
IBM has been bouncing its way higher in a textbook uptrending channel, moving up 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 IBM to stay stuck within since the beginning of the year. That means, as shares come up off of support for the sixth 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 IBM can actually still catch a bid along that line before you put your money on shares.
If patience was a virtue in IBM, then shareholders in National-Oilwell Varco (NOV) are due for sainthood. This stock has shed about 45% of its market value since last fall, tumbling alongside the rest of the energy sector. The good news is that long-suffering shareholders could finally be about to catch a break.
National-Oilwell Varco 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 NOV, that's the $55 resistance level. I
t's worth noting that this stock has looked "bottomy" for a while now, starting with the first bottom back in the first quarter. But while the pattern has evolved, the buy trigger hasn't; $55 has been the level to watch all year long.
Momentum, measured by 14-day RSI, adds some extra upside confidence to the setup in NOV. Our momentum gauge has been in an uptrend since January, 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 $55 gets taken out, National-Oilwell Varco becomes a buy again.