BALTIMORE (Stockpickr) -- China riled markets to start the week, surprising investors by devaluing the yuan in an attempt to boost sinking economic stats and a national equity market in turmoil.
U.S. markets reacted to the news with volatility over the last two sessions, closing down sharply on Tuesday and opening down on Thursday only to end the session at breakeven. 2015 has been a year where performance has been hard to come by, and that makes any extra spurts of volatility especially unbearable for investors. That's the bad news.
The good news is that while performance may be hard-fought in 2015, it's not completely off-limits. Even now, nearly a third of the stocks in the big S&P 500 index are up 10% or more year-to-date. That means a very vocal minority of Wall Street's biggest stocks are working for investors this year.
To find the next batch, we're turning to the charts for a technical look at five new big-name stocks to trade for gains this week.
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.
Our first trade comes from another emerging market powerhouse – India. $44 billion Indian financial services stock HDFC Bank (HDB) has been in rally-mode for most of 2015, up about 24% since the calendar flipped to January. But don't worry if you've missed out on that move in this big overseas bank -- shares look ready to kick off a second leg higher in August.
Since July, HDFC Bank has been forming a textbook ascending triangle pattern. The ascending triangle is a bullish price setup that's formed by horizontal resistance up above shares (in this case at $64) and uptrending support to the downside. As shares of HDFC Bank bounce in between those two price lines, they've been getting squeezed closer and closer to a breakout up above our $64 price ceiling. When that happens, we've got our buy signal.
Relative strength (not to be confused with RSI) adds some extra confidence to buying HDFC Bank right now. That's because our relative strength line has been in an uptrend since the beginning of the summer, an indication that HDFC Bank is consistently outperforming the rest of the market in the near-term. When buyers take out $64, it's time to take this trade.
American Airlines Group
2015 hasn't looked quite so rosy for shares of $30 billion legacy airline American Airlines Group (AAL). Despite prolonged low fuel prices and record industry profitability, shares of American Airlines have been under pressure all year long, shedding about 20% of their market value year-to-date. But American could be in store for a reversal this summer.
American Airlines is currently forming a double bottom pattern, a bullish reversal setup that indicates a gradual shift in control of shares from sellers to buyers. The big buy signal comes on a breakout through shares' $44 price ceiling. Shares are bumping up against that breakout level this week. If $44 gets taken out, then look for a re-test of this year's prior highs up at $56.
Momentum, measured by 14-day RSI, is our side-indicator in American Airlines. Our momentum gauge has been in an uptrend since the pattern started forming in late May, making higher lows as shares of American were carving out their bottom. That's a bullish divergence that indicates that buying pressure has been building under the surface. When $44 gets taken out, it's time to buy.
We're seeing the same setup -- with a twist -- in shares of technology giant Google (GOOG), (GOOGL). Google rallied hard on news that the firm was restructuring into a company called Alphabet, a move designed to provide more transparency over the firm's wide array of disparate businesses. And that big gap higher this week is setting the stage for a rounding bottom pattern that just happens to be popping up near the top of this stock's recent range.
Even though Google's price setup isn't exactly textbook, it's tradable here. For Google's Class C shares, the breakout level to watch is resistance up at $670.
Why all of that significance at that $670 level? It all comes down to buyers and sellers. Price patterns, like this rounding bottom setup in Google, 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 Google's stock.
The $670 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 $670 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 Google until buyers are able to shove this stock above $670.
Financial sector giant Citigroup (C) is looking bullish this week -- and the good news is that you don't need to be an expert trader to figure out the price action here. In fact, Citi's price setup is about as basic as they get. Shares have been moving up and to the right all year long now, and yesterday's successful test of support means that the uptrend is alive and well in shares of Citigroup this summer.
Put simply, every test of the bottom of Citi's channel has given traders a low-risk, high-reward opportunity to build a position -- and after testing the bottom of the channel intraday yesterday, Citi ended up closing back inside the dashed line that's acted as a secondary support level since February. In other words, buy the bounce here.
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 Citigroup can actually still catch a bid along that line before you put your money on shares.
Last up on our list of big bullish trades is $48 billion Swiss-based power management and automation equipment company ABB (ABB) has spent most of its year tracking sideways, but zoom in a bit on the chart and things start to look a whole lot more directional on a shorter-term timeframe. After correcting for most of the summer, ABB is showing traders a classic reversal pattern in the short-term.
ABB's reversal pattern is an inverse head and shoulders setup. 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." That's the $20.75 level in ABB.
ABB is another stock where momentum hints at building buying pressure. Our momentum gauge has been in an uptrend since the start of July, making higher lows during each of the three price lows in ABB's pattern. When $20.75 gets materially taken out, we know that buyers are back in control of this large-cap industrial stock.