It's a coin toss. 50/50: Those are your odds of owning a stock that's up double digits in 2016. As I write, just over half of the stocks in the S&P 500 are up 10% or more in 2016, a stark turnaround from the sinking feeling that stocks were giving investors back at the start of the year.
And the S&P's biggest gains could still be ahead of it this year, as the big market index rounds the corner towards the second half of 2016. That's certainly the case in many of the individual stocks -- as the big market indices push up against all-time highs this summer, many of the individual stocks are showing off breakout setups.
That means you don't need to resort to a coin flip to figure out which stocks you should own as we head toward August. Instead, the technical picture tells you just about everything you need to know about what's working in this market.
So, to take full advantage of that positive shift in momentum, we're turning to the charts for a technical look at five stocks that are teetering on the edge of breakout territory this week.
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.
Grana y Montero
Leading off our list of potential breakouts is Grana y Montero (GRAM) , a small-cap Peruvian industrial stock. Grana y Montero has seen some explosive price action so far this year, rebounding from a steep correction in 2015 as ex-U.S. stocks found their footing in a big way. Since January, Grana y Montero has more than doubled -- but don't worry if you've missed the move so far. Shares could be in store for a second leg higher in August.
Grana y Montero is currently forming a textbook ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares at $8, and uptrending support to the downside. Basically, as Grana y Montero has bounced in between those two technically important levels since mid-April, this stock has been getting squeezed closer and closer to a breakout through its $8 price ceiling. When that happens, we've got our buy signal.
Relative strength, which measures this stock's price performance vs. the broad market, adds some extra confidence to the possibility of a break above $8. Our relative strength line, down at the bottom of the price chart, has been in an uptrend since the beginning of the year, confirming that this stock is still outperforming the S&P even at this point. A breakout above $8 would probably look a lot like Grana y Montero's prior breakout from $4, back in April -- that's good reason to keep a close eye on shares in the coming sessions.
We're seeing the exact same price setup in shares of $2.5 billion medical device stock Globus Medical (GMED) , albeit with a bit of a twist. Like Grana y Montero, Globus has been forming an ascending triangle pattern -- in this case, the setup has been in play for most of 2016. And as shares test out $26 for the fifth time this year, the odds of seeing a breakout are increasing.
$26 is the level to watch for two simple reasons: supply and demand. 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 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.
Typically, the ascending triangle is a continuation setup that shows itself after an up-move, much like the setup we saw earlier in Grana y Montero. So while the long-term ascending triangle in Globus isn't exactly "textbook" it's still very tradable on a push through $26. When it happens, consider parking a protective stop on the other side of support at $23.
No two ways about it, 2016 has been an awful year for shares of Ultragenyx Pharmaceutical (RARE) . Dragged down by overall weakness in the biotech space, this $2 billion biopharma has seen its share price cut in half since the calendar flipped to January. That's the bad news. The good news is that long-suffering shareholders could finally be in store for a reprieve, thanks to a classic reversal setup that's been forming in Ultragenyx in the long-term.
Ultragenyx Pharmaceutical 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 swing lows that find support at approximately the same price level; for Ultragenyx, those bottoms came in February, and again in late June. The buy signal comes on a push above $75 resistance, the high that separates that pair of lows.
Remember to be reactionary with this trade -- or any of the other technical setups we're honing in on today. The Ultragenyx Pharmaceutical chart doesn't become a high-probability trade until $75 resistance gets taken out. That said, the long-term nature of this setup comes with equally long-term upside implications when the breakout does happen. Stay tuned.
Things are looking pretty straightforward for shares of aerospace company Heico (HEI) . Since last winter, this $3.9 billion aircraft parts maker has been in a well-defined uptrend, bouncing its way up and to the right in a relatively tight price channel. Heico is still a "buy-the-dips stock" this summer.
Heico's uptrend is bounded by a pair of parallel trend lines that have identified the high-probability range for this stock to remain stuck within. So far, every time this stock has touched the bottom of its price range, it's presented traders with a low-risk, high-reward buying opportunity. So as shares push off of support for the umpteenth time here, it makes sense to buy this next 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 Heico can still catch a bid along that line before you put your money on shares.
Last on our list of breakout trades is billion-dollar banking stock Beneficial Bancorp (BNCL) . This small-cap banking stock has been moving mostly sideways in 2016, up all of 2.9% since the start of 2016. But zoom in on the chart a bit, and Beneficial Bancorp starts to look a lot more directional for the second half of the summer.
Beneficial Bancorp has spent the last six weeks forming a textbook inverse head and shoulders pattern, a classic reversal setup that indicates exhaustion among sellers. The pattern is formed by two swing lows that bottom out at approximately the same level (the shoulders), separated by a lower low (the head). The buy signal came late last week on a move through BNCL's neckline at $13.40 -- and the breakout got confirmed with yesterday's close.
From here, this price pattern's minimum measuring objective puts a price target on Beneficial Bancorp up at $14.40, a move that would come with new 52-week highs and the prospect of continued upside. That's good reason to keep an eye on the BNCL breakout this summer. Remember, this is a small-cap, so risk management is critical -- if you decide to buy this breakout, $12.90 (the lower bound of the right shoulder) is a logical place to park your protective stop.