Yesterday's 1.49% pop in the S&P 500 means that the big market index is back within grabbing distance of breakeven for 2015.
With only seven trading weeks left this year, it's still a bit of a toss-up whether the S&P will manage to end its seventh straight year without a meaningful decline. But while the final stretch of 2015 is still uncertain, one thing this is for sure is the fact that a big chunk of the individual stocks in the S&P are going to book standout performances this year.
As I write, 28% of S&P components are up 10% or more year-to-date. That's a big chunk of the market that's handing out some stout gains in 2015. To find the stocks primed to outperform in the coming weeks, we're turning to the charts for a technical look at five breakout stock setups to trade for gains…
In case you're unfamiliar with technical analysis, here's the executive summary: 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, here's a rundown of five technical setups that are showing solid upside potential right now.
Up first is homebuilder D.R. Horton (DHI) . This $11.3 billion builder has enjoyed some strong performance in 2015, rallying more than 24% since the calendar flipped to January. But don't worry if you've missed the move in this large-cap housing stock; shares look likely to kick off a second leg higher this fall…
That's because D.R. Horton is currently forming a textbook ascending triangle pattern, a bullish price setup that's formed by horizontal resistance up above shares at $32, and uptrending support to the downside. Basically, as D.R. Horton bounces in between those two technically-important price levels, it's been getting squeezed closer and closer to a breakout through our $32 price ceiling. When that breakout happens, we've got our buy signal in this homebuilder stock.
Relative strength (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in D.R. Horton right now. That's because this stock's relative strength line is holding its uptrend from the beginning of this year, indicating that shares are continuing to beat the rest of the market long-term.
Keep a close eye on this one. If $32 gets taken out, it's time to be a buyer. Shares are close to that big level here.
We're seeing the same setup in shares of $6.3 billion energy company Antero Resources (AR) this month. True, Antero's trajectory hasn't been quite as strong as the price action in D.R. Horton. Like the rest of the energy sector, this stock has been in selloff mode for much of the year, shedding about 40% of its market value since January. But while that means that the ascending triangle in Antero Resources isn't quite "textbook," it's every bit as tradable as the setup D.R. Horton.
For Antero Resources, the big breakout level to watch is resistance up at $26…
Why all of that significance at the $26 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle setup in Antero, 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 Antero Resources' stock.
The $26 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 $26 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Remember to be reactionary here. This isn't a high-probability trade until that $26 line in the sand gets crossed.
It's been a tough year for real estate investment trusts. With huge dividend payouts as one of their main selling points, the threat of higher interest rates has been a constant pressure on REITs such as Kilroy Realty (KRC) , a commercial REIT that's off its first-quarter highs by nearly 18%. But Kilroy could be about to turn a critical corner this fall. Here's how to trade it…
Kilroy Realty is currently forming a double bottom, a bullish reversal setup that looks just like it sounds. The double bottom is formed by a pair of troughs that bottom out at approximately the same price level, and it triggers with a push through the peak that separates those two lows. For Kilroy Realty, that buy signal to watch for is $70. Shares have been in a downtrend all year long, and it's no coincidence that a breakout above our $70 price level also breaks shares through the top of that downtrend.
Momentum, measured by 14-day RSI, provides some extra evidence for the reversal. Our momentum gauge has been in an uptrend since August, making higher lows at the same time Kilroy's price was settling in at the same levels. That's a bullish divergence that becomes actionable once increasingly eager buyers can muster the strength to shove this stock back above $70 resistance.
No doubt about it, 2015 has been a great year for shares of $65 billion tobacco stock Reynolds American (RAI) . Since the first week of January, Reynolds has rallied more than 43%, shoving its way to all time highs as recently as last month. Put simply, Reynolds American is a "buy-the-dips stock" right now, and shares just showed investors their latest buyable dip last week.
You don't need to be an expert technical trader to figure out the price action in Reynolds. Instead, the uptrend in this tobacco stock is about as basic as price patterns get. Shares have been bouncing their way higher between a pair of parallel trend lines since the start of the year, and this month's test of trend line support looks like another buyable bounce.
Actually 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 Reynolds American can actually still catch a bid along that line before you put your money on shares.
Like any trade, risk management is key. If you decide to be a buyer here, the 50-day moving average has been acting like a proxy for support in recent sessions. That makes it a logical place to park a protective stop.
Magellan Midstream Partners
Last up is large-cap midstream energy stock Magellan Midstream Partners (MMP) . Like other high-yield energy plays, Magellan has been hammered lower all year long, shedding more than 21% of its market value so far in 2015. But shares are starting to look "bottomy" in the long-term -- and that could be a very good thing for long-suffering shareholders this fall.
Magellan has spent the last several months showing traders a classic reversal setup called an inverse head and shoulders. The pattern signals exhaustion among sellers, and it's identified by 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". Right now, that's the $70 level in Magellan Midstream.
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 a good reason to keep a close eye on Magellan Midstream's $70 level here.