BALTIMORE (Stockpickr) – Earnings season is coming to a close this week, and, all told, the results have been pretty solid for the second quarter. So far, 419 of the stocks in the big S&P 500 have reported their numbers to Wall Street for the quarter. Of those a whopping 75% have managed to exceed analysts' profit estimates.
(In fact, energy stocks were the only sector that, on average, missed expectations.)
The good news is that those eye-popping large-cap price moves have been going in both directions this summer. And to find the next big rally, we're turning to the charts to take a closer technical look at five huge stocks to trade for gains.
First, a little 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.
Mizuho Financial Group
Up first is $53 billion Japanese banking stock Mizuho Financial Group (MFG). No doubt about it, 2015 has been a stellar year for shares of Mizuho Financial. Shares are up nearly 25% since the calendar flipped to 2015, which means that this financial firm is outperforming the S&P 500 by a factor of 12 this year.
But don't worry if you've missed the move in Mizuho Financial so far. Shares look likely to kick off a second leg higher this summer.
But don't worry if you've missed the move in Mizuho Financial so far. Shares look likely to kick off a second leg higher this summer.
Mizuho Financial is currently forming a textbook ascending triangle pattern, a bullish continuation pattern that's formed by horizontal resistance up above shares at $4.50, and uptrending support to the downside. As Mizuho's stock bounces in between those two technically-significant price levels, it's been getting squeezed closer and closer to a breakout above that $4.50 price ceiling. When that move above resistance happens, we've got our buy signal.
Relative strength (not to be confused with RSI) adds some extra confidence to buying Mizuho Financial right now. That's because our relative strength line has been in an uptrend since February, an indication that Mizuho Financial is consistently outperforming the rest of the market long-term.
Finally, don't get thrown off by the abundance of gaps on Mizuho's chart right now. Those gaps, called suspension gaps, are caused by overnight trading on the Tokyo Stock Exchange and the Osaka Securities Exchange. They can be ignored for trading purposes; if $4.50 gets taken out, Mizuho is a buy.
AbbVie
We're seeing the exact same setup in shares of $111 billion biopharmaceutical firm AbbVie (ABBV - Get Report). Like Mizuho Financial, AbbVie is forming a pretty textbook ascending triangle pattern, in this case with a resistance level up at $71. If that $71 ceiling gets broken, AbbVie becomes a buy.
Why all of that significance at that $71 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle setup in AbbVie, 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 AbbVie's stock.
The $71 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 $71 so significant -- the move means that buyers are finally strong enough to absorb all of the excess supply above that price level.
Like with any breakout trade, it's important to be reactionary here. Don't buy AbbVie until buyers are able to shove this stock above $71.
Like with any breakout trade, it's important to be reactionary here. Don't buy AbbVie until buyers are able to shove this stock above $71.
GlaxoSmithKline
Sticking with the healthcare sector brings us to pharma firm GlaxoSmithKline (GSK - Get Report). Glaxo hasn't fared quite as well as its pharmaceutical industry peers in recent months. In fact, shares are down about 10% from their April highs. But this stock is showing traders a classic reversal pattern this week, and shares are in breakout mode.
Glaxo spent most of the last couple of months forming a double bottom pattern, a bullish reversal pattern that looks just like it sounds. The setup is formed by a pair of swing lows that find support at approximately the same price level. The buy signal comes on a breakout through the peak that separates though two troughs. For Glaxo, that's the $43.50 resistance level. Shares saw their first big thrust above that $43.50 level with yesterday's close.
If you're looking to be a buyer in GlaxoSmithKline here, risk management is key. Shares may be breaking through a key level this week, but they're still not completely clear of their downtrend. The 50-day moving average was a good proxy for that prior downtrend in Glaxo, which makes it a logical place to park a protective stop beneath on the way up.
Comcast
Comcast's (CMCSA - Get Report) big 4.67% drop yesterday was hard to miss, but it might not be quite as ominous as it looks at first glance. That's because, despite the price decline, shares ended the day right at a key support level, setting the stage for a potential bounce. And the good news is that you don't need to be an expert technical trader to figure out why.
Comcast has been bouncing its way higher in a well-defined uptrending channel since last fall, catching a bid on every successive test of trendline support. Put simply, every test of the bottom of Comcast's channel has given traders a low-risk, high-reward opportunity to build a position -- and shares are touching that support line this morning. In other words, buy the bounce here.
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 Comcast can actually still catch a bid along that line before you put your money on shares.
Remember, all trend lines do eventually break, but by actually waiting for a bounce to happen first, you're ensuring Comcast can actually still catch a bid along that line before you put your money on shares.
BHP Billiton
Last up on our list is $98 billion mining company BHP Billiton (BHP). Not surprisingly, 2015 has been a challenging year for BHP Billiton, just like for other basic materials stocks. Shares have shed about 17% since the calendar flipped to January, and they're down 45% in the last 12 months. But long-suffering shareholders could finally be in for a bit of a break. That's because BHP Billiton is starting to look "bottomy" this summer.
BHP Billiton is currently forming an inverse head and shoulders pattern. You can spot the inverse head and shoulders by looking for 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." That's the $40 level in BHP Billiton.
Momentum, measured by 14-day RSI, adds some extra upside confidence to the setup in BHP Billiton. Our momentum gauge has been in an uptrend since late June, making higher lows during each of BHP Billiton's three price lows. That's a bullish divergence that indicates that buying pressure has been building under the surface. When $40 gets taken out, it's time to buy.
By Jonas Elmerraji
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