Editors' pick: Originally published Nov. 9.
Donald Trump's election win in the wee hours of Wednesday morning wasn't the only thing that surprised the pundits about this week's election bombshell. The stock market's reaction to it was another. After seeing S&P 500 futures limit down overnight, the big market averages pulled an about-face by lunchtime, finishing with 1.1% rally in the S&P by the time the closing bell rang Wednesday.
That pent-up positive energy for stocks is sending an important signal for investors: With the big, black clouds of the election finally out of the way, U.S. markets are well positioned to finally break free of the sideways slump in the S&P 500 that's basically left the S&P treading water for the past two years.
More importantly, it's happening as the big market averages sit just a percentage point below all-time highs for the stock market. Put simply, another day like Wednesday and the S&P 500 will be higher than it's ever been in history.
To take advantage of the surprise upside in stocks, we're turning to the charts for a technical look at five huge stocks that are breaking out after Donald Trump's election win.
First, a quick note 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...
Canadian banking giant Toronto-Dominion Bank (TD - Get Report) wasn't one of the beneficiaries of yesterday's rally. While U.S. financials had a huge day Wednesday, TD Bank actually corrected slightly. But don't count TD Bank out yet. This big financial operator is on the verge of a big breakout this fall. Here's how to trade it.
For the last several months, TD Bank has been forming an ascending triangle pattern, a bullish continuation setup that's formed by horizontal resistance up above shares at $45.50, and uptrending support to the downside. Basically, as TD Bank bounces in between those two technically significant price levels, it's been getting squeezed closer and closer to a breakout through that aforementioned $45.50 price ceiling. When that breakout happens, we've got a clear-cut buy signal in TD.
This stock's positive performance is nothing new. In fact, year to date, TD Bank is up more than 15.5% on a price basis alone, leaving its American big banking peers in its dust. That leadership has translated into the relative strength uptrend down at the bottom of Toronto-Dominion Bank's chart.
That uptrend indicates that this stock has been outperforming the broad market all year long, and continues to do so here, even in spite of yesterday's correction. As long as TD's relative strength line keeps tracking higher, this stock is statistically predisposed to keep on outperforming in the long run.
We're seeing the exact same price setup in snack and beverage giant PepsiCo (PEP - Get Report) , a holding in Jim Cramer's Action Alerts PLUS portfolio. Pepsi has been showing off some interesting price action from a technical standpoint all year long, but its price chart has evolved into a textbook example of an ascending triangle pattern this fall. For Pepsi, the breakout level to watch is resistance up at $109, an upside barrier that's harangued shares going all the way back to July.
What's so special about that $109 price level? Put simply, it identifies a crucial level for buyers and sellers. While the ascending triangle pattern on Pepsi's chart is a useful way to identify where the buy signal happens, simply drawing lines on a chart isn't the thing that makes it tradable. Instead, the "why" for Pepsi comes down to basic supply and demand for this stock's shares themselves.
The $109 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 $109 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level. Pepsi's within grabbing distance of that trigger price, but it's not there yet. Patience is a virtue if you decide to trade PepsiCo this fall; wait for shares to materially close above $109 before you jump into this trade.
2016's price action has been a little less bullish so far in shares of $20 billion discount air carrier Ryanair Holdings (RYAAY - Get Report) . Year to date, this airline has lost more than 5% of its market value, underperforming the broad market by double-digits. But Ryanair could be about to make up for lost time in the final stretch of 2016 thanks to a bullish breakout signal that's coming through this week.
Ryanair has spent the last several months 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 bottom out at approximately the same price level. The buy signal comes on a breakout through the peak that separates our pair of troughs; in Ryanair's case, that breakout level to watch comes in at $80. Shares materially broke above that $80 price barrier on Wednesday, opening the door to more upside from here.
There are a couple of important things to note about Ryanair's price chart: First, the depth of the swing lows on the double bottom is dramatic. As a minimum measuring objective, we're likely to see Ryanair hit $92 as an ultimate upside target from here. That's a lot of upside potential baked into Ryanair's chart.
Another takeaway is that investors shouldn't pay attention to the abundance of gaps on Ryanair's chart. Those gaps, called suspension gaps, are caused by overnight trading on the Irish Stock Exchange and London Stock Exchange. Those price gaps don't carry any technical significance -- but Ryanair's $80 breakout this week does.
It doesn't take a trading expert to decipher what's happening in shares of Intel (INTC - Get Report) this year. A quick glance at the price chart tells you just about everything you need to know. Since bottoming back in February, Intel has rallied more than 23% -- and it's still a "buy the dips stock" this fall.
Intel is forming an uptrending channel, a technical trading pattern that's about as basic as they get. The uptrend is formed by a pair of parallel trendlines that have managed to corral almost all of this stock's price action since mid-January. Put simply, every test of the bottom of the channel over that uptrend period has provided a low-risk, high-reward buying opportunity in Intel. So, as shares touch that same support level for a fifth time here, it makes sense to buy the next bounce higher.
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, invalidating the upside trade).
Remember, all trend lines do eventually break, but by actually waiting for the bounce to happen first, you're ensuring Intel can actually still catch a bid along that line before you put your money on shares.
Last on our list of potential big-cap breakouts to watch this week is United Technologies (UTX - Get Report) . UTX has been looking corrective lately, giving back about 5% since it peaked back in August. But that correction is likely to be short-lived - UTX is breaking out of a classic reversal pattern that's pointing shares back at their 52-week highs in November.
UTX has spent the last two months forming an inverse head and shoulders pattern, a bullish reversal setup that signals 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 yesterday on a move through UTX's neckline at $103. The large size of yesterday's trading range adds some extra credence to the strength of the breakout through $103.
Price momentum, measured by 14-day RSI at the top of UTX's chart, is the side-indicator to watch here. That's because our momentum gauge has been making a series of higher lows over the course of the inverse head and shoulders pattern, a bullish divergence that indicates buying pressure has been ramping up. If you decide to buy here, it makes sense to park a stop loss on the other side of UTX's most recent swing low at $101.