It's been an eventful month for U.S. markets. Where 80% of S&P 500 components were down at one point in back mid-February, the tables have turned dramatically in the last six weeks. As of this writing, nearly two-thirds of S&P components are actually up year-to-date.
What might be even more surprising is that most stocks aren't just up -- they're up a lot. While the S&P is just barely above breakeven on the year right now, approximately half of the stocks that make up the big index are actually up 5% or more in 2016. That's a stat that suggests the raw numbers aren't telling the whole story here.
And more gains could be on the horizon as we head into spring. To find the stocks that look best-positioned for higher ground ahead, we're turning to the charts for a technical view of five stocks that are showing breakout potential in March.
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 on our list of breakout trades is $5.5 billion water utility Aqua America (WTR) . Aqua America has been a stellar performer lately. In the last six months, this mid-cap water stock has rallied more than 20%, leaving the rest of the market in its dust. But don't worry if you missed the big move in this stock. That's because shares look ready to kick off a second leg higher this spring.
Aqua America is currently forming an ascending triangle pattern, a bullish continuation pattern that's formed by horizontal resistance up above shares (at $32 in this case), and uptrending support to the downside. Basically, as Aqua America bounces in between those two technically significant price levels, shares have been getting squeezed closer and closer to a breakout through their $32 price ceiling. When that breakout happens, we've got our buy signal.
Relative strength, (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in Aqua America right now. That's because our relative strength line is holding its uptrend from last summer, indicating that this stock is still outperforming the rest of the market long-term. As long as that uptrend in our side indicator stays intact, Aqua America should keep on outperforming the rest of the market.
If you decide to be a buyer on the $32 breakout, the 50-day moving average is a logical place to park a stop loss. If the 50-day gets broken, then the upside pattern is busted, and you don't want to own it anymore.
We're seeing the exact same setup in shares of video game company Activision Blizzard (ATVI) . Like Aqua America, Activision has been forming an ascending triangle -- in this case after a selloff from the $40 range back in December. Even though that price action makes Activision's price action a little non-textbook, the trading implications are unchanged in this big stock. From here, the buy signal comes on a push through $33.
Why all of that significance at the $33 level? It all comes down to buyers and sellers. Price patterns, such as this ascending triangle setup in Activision Blizzard, 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 Activision Blizzard's shares.
The $33 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 $33 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. Activision has been in a downtrend since December, and this stock isn't officially a high-probability buy until our $33 line in the sand gets crossed. From there, the next potential stumbling point comes in at Activision's prior highs at $40.
2016 has been a full-fledged rally year for gold miners – for instance, since the calendar flipped to January, the Market Vectors Gold Miners ETF (GDX) is up 50%. And mid-cap gold miner Kinross Gold (KGC) is up even more. Thing is, nearly all of Kinross' gains came in a three week stretch from late January to mid-February. Since then, this stock has been doing nothing but move sideways.
The thing is, that sideways price action in Kinross is exactly what makes this stock look tradable right now. Here's why.
The sideways price action in Kinross is a rectangle pattern. It gets its name because the pattern basically "boxes in" shares between horizontal support and resistance lines. For Kinross, the levels to watch are resistance up at $3.20 and support at $2.80. Rectangles are "if/then patterns": If Kinross Gold breaks out through resistance at $3.20, then traders have a buy signal. Otherwise, if this stock violates support at $2.80, then the high-probability trade is a sell.
Because Kinross' prior trend was up in February, it favors breaking out above $3.20. Still, it's important to be reactionary and wait for this stock to actually exit the rectangle before you take sides on this trade. Technical analysis is a risk management tool, not a crystal ball, and Kinross Gold doesn't become a high-probability buy until our price ceiling gets taken out.
If Westar Energy (WR) has its way, the mid-cap electric utility won't have a stock chart pretty soon. Earlier this month, reports hit that Westar is exploring "strategic options." In other words, it's putting itself on sale. Shares spiked at the time on the potential for a buyout, but that didn't change the technical picture that's been shaping up in shares. And until Westar gets bought, shares are likely to keep trading in this predictable price pattern.
The good news is that you don't need to be an expert trader to figure out what's going on in shares of Westar right now. The price action is about as simple as it gets.
Westar has been in a long-term uptrend for more than six months now. That trend is formed by a pair of parallel trend lines that identify the high-probability range for shares. Put simply, every test of the bottom of that price channel has provided investors with a high-probability buying opportunity in Wester. And as this stock tests the top of its range here, it makes sense to wait for a minor correction to buy the next bounce off of support.
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 Westar Energy can actually still catch a bid along that line before you put your money on shares.
Like most large-cap stocks, Goldman Sachs (GS) spent the start of 2016 in correction-mode. But while the rest of the market has rebounded back above breakeven, on average, Goldman is still down double-digits today, trailing the rest of the S&P by a pretty deep margin. The good news for long-suffering Goldman Sachs shareholders is that this stock is finally looking "bottomy." Here's how to trade it.
Since January, Goldman Sachs has been forming an inverse head and shoulders pattern, a technical reversal setup that indicates exhaustion among sellers. You can spot this price pattern by looking for two swing lows that bottom out at approximately the same level (the shoulders), separated by a lower low (the head). The buy signal comes on a move through Goldman's neckline at the $160 level.
Momentum, measured by 14-day RSI up at the top of the chart, adds some extra confidence to Goldman's potential for a breakout signal. This stock's momentum gauge made a series of higher lows at the same time that its price was bottoming out in the inverse head and shoulders pattern. That's a bullish divergence that tells us buying pressure has been quietly building behind the scenes since January. Wait for $160 to get taken out before jumping into this trade.