BALTIMORE (Stockpickr) -- We're almost halfway through the year, and the big market averages are struggling just to clear the 3% gains mark.
Luckily, when you break things down to the individual stocks, things don't look quite as bad. For example, almost a quarter of S&P 500 components have out-gained the S&P's tepid 2.4% return just in the last month For comparison, the overall index is down 0.82% during that timeframe.
The big takeaway here is that while the market averages may be grinding along sideways, there's money to be made by focusing on the individual stocks that are actually working in 2015.
So 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.
Up first is $42 billion software firm Adobe Systems (ADBE). Adobe has been a solid performer so far in 2015, rallying 14.7% since the calendar flipped to January. But Adobe may have most of its upside ahead of it still. This stock is in breakout mode following Monday's breakout.
Adobe had been forming a bullish ascending triangle pattern for the last few months, bouncing in between resistance up at $80 and uptrending support to the downside. Basically, as shares moved between those two price levels, they were getting squeezed closer and closer to a breakout above that $80 price ceiling. That buy signal triggered with Monday's move to new highs.
That makes this week a good time to be a buyer in Adobe from a risk/reward standpoint.
Relative strength (not to be confused with RSI) adds some extra confidence to the Adobe trade right now. That's because our relative strength line has been in an uptrend going all the way back to October, an indication that Adobe 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, Adobe is positioned to keep beating the S&P.
We're seeing the same setup in shares of pharmaceutical giant Bristol-Myers Squibb (BMY) right now. The big difference here is that this setup hasn't triggered a breakout yet. For Bristol-Myers Squibb, the buy signal comes on a push through resistance up at $69. Investors should keep a close eye on that $69 level in this healthcare trade this week.
Why all of that significance at that $69 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in Bristol-Myers Squibb, 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 BMS' stock.
The $69 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 $69 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 it until buyers are finally able to shove this stock above resistance.
Meanwhile, e-commerce giant Amazon.com (AMZN) is testing a breakout of its own this week. Amazon has been 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. Even though the setup isn't textbook strictly speaking, the trading implications are the same.
The buy signal comes on a breakout above $440 resistance -- and shares have been flirting with that level this week.
Amazon's price setup looks a whole lot like the one it formed earlier this year, only to gap higher on earnings slightly after breaking out above prior resistance at $390. While it's not likely we'll see a repeat performance here, it is likely that we'll see shares move in that direction this summer provided Amazon can hold newfound support at $440.
Big U.S. bank Citigroup (C) is pulling ahead of the S&P 500 in 2015, up just over 4.7% since the calendar flipped to January. But that number doesn't really do Citi justice. Tighten the chart up a bit, and shares are up more than 20% from February's lows. That stat transforms what's been a pretty modest gain year-to-date into a more unmistakable trend.
Put simply, Citigroup is a leader right now -- and the good news is that you don't need to be an expert trader to see why. In fact, the price action in Citi is about as basic as it gets.
Citigroup has been bouncing its way higher in a textbook uptrending channel since February, 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 Citi to stay stuck within since shares bottomed. That means, as shares come up off of support for the umpteenth time this week, it makes sense to buy the bounce.
Citigroup is another stock that's been establishing support at the 50-day moving average. That makes it a logical place to park your protective stop if you decide to buy the bounce in Citi.
We're seeing a nearly identical setup in another big banking stock this week: Canada's Toronto-Dominion Bank (TD).
Just like Citigroup, Toronto-Dominion Bank has been bouncing its way higher in an uptrending channel since bottoming back at the start of February. TD has been a little more intentional in its price action. Shares have only tested support five times now, and this week's most recent bounce off support should provide another solid buying opportunity as Toronto-Dominion Bank's share move back towards the top of the channel.
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 Toronto-Dominion Bank can actually still catch a bid along that line before you put your money on shares.