Waste Management Stock's Breakout Could Lead to Fast Profits

Waste collection and management is a big and growing business, and one that will almost certainly be around forever. More importantly for traders in the here and now, many of the companies in this sector currently have attractive charts. 

Waste Connections (NYSE: WCN) rallied 4% Tuesday after announcing its first-quarter results.

The company reported revenue of $481.7 million, up 7% on a year-over-year basis. Adjusted earnings per share (EPS) were 19% higher at $0.44, and the company saw notable strength in solid waste disposal volumes and a nearly 20% increase in exploration and production (E&P) waste activity.

As the U.S. population grows, so too does the amount of waste we produce. I am sure along the way there will be technological advances that could pressure margins, but overall, waste management is a solid business, and that's clearly reflected on the longer-tem charts of many of the companies in this space.  

The waste and environmental services industry is grouped in the industrial sector, which as a whole, looks good from a technical point of view. The Industrial Select Sector SPDR (NYSE: XLI) continues to push higher with a seemingly unstoppable series of higher lows and higher highs, and great support from its medium-term moving averages. 

I believe industrials may still have one push higher to go in these late innings of the current cyclical bull market, and this should keep a bid under many of the groups within the sector, including waste management. 

As a general rule, extremely cyclical stocks, like certain consumer discretionary groups, should be avoided in the late stages of a cyclical bull, while large caps, energy and less cyclical industrials should show relative outperformance.

Moving on to Waste Connections' charts, the long-term trend is clearly up. 

I used a logarithmic calculation for the weekly chart, which helps to smooth out the trend. The result is a clearly defined uptrend, which has been touched twice since 2009. Both times it was the result of an orderly mean-reversion/consolidation move -- a hallmark of a healthy stock. 

Moreover, both times WCN formed a bull flag pattern, which as the name implies, tends to resolve to the upside. The first flag obviously resolved higher, but the verdict is still out on the second one, although it looks promising.

Zooming in on the second bull flag pattern on the daily chart below reveals an inverse head-and-shoulders within the larger consolidation pattern.

Note how closely together the stock's 50-day, 100-day and 200-day simple moving averages currently sit. Obviously, this is the result of the stock having traded sideways over the past few months. But in the context of the bull flag in play, this is often a sign of a stock coiling up for a bigger move. This bigger move then causes the moving averages to spread out again.

As for the inverse head-and-shoulders within the bull flag, it is marked by its left shoulder, head, and right shoulder (red circles), and the neckline (red line) serves as the toggle. A break above the neckline is bullish, and that's exactly what WCN is doing on its post-earnings rally. 

Recommended Trade Setup:

-- Buy WCN at the market price
-- Set stop-loss at $43.80
-- Set initial price target at $47.50 for a potential 7% gain in 2-6 weeks

By By Serge Berger

Source:http://www.profitabletrading.com/stocks-etfs/buy/stocks-buy-waste-connections-wcn-stock