BALTIMORE (Stockpickr) – Well, that's it. After yesterday's closing bell, the third quarter of 2015 is now over, and we're officially in the final stretch of the year. And what a year it's been…
Q3 managed to hit the record books as the worst quarter for U.S. stocks in about four years, a feat that's matched only by the bigger picture right now: the big S&P 500 index is currently on track for the worst year (and first meaningful loss) since the financial crisis of 2008. But that doesn't mean you should throw in the towel on stocks.
You see, while 2015 has undoubtedly been a challenging environment for investors, it's also been host to some big buying opportunities. So, today, we're turning to the charts for a technical look at five big stocks that look ready to hand out breakout gains this fall.
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.
Altria
Up first on our list is tobacco giant Altria (MO - Get Report) , a stock that's shown some solid price leadership this year. Since the calendar flipped to January, shares of Altria have managed to rally more than 10%, besting the S&P 500's nearly 7% drop by a wide margin.
But don't worry if you've missed the move in Altria so far this year. Shares look ready to kick off a second leg higher this fall.
But don't worry if you've missed the move in Altria so far this year. Shares look ready to kick off a second leg higher this fall.
Relative strength, (not to be confused with RSI at the top of the chart) adds some extra confidence to the upside in Altria right now. That's because relative strength is holding its uptrend from the start of the year, indicating that this stock is still outperforming the rest of the market long-term as the calendar flips to October. As long as that uptrend in our side indicator stays intact, Altria should keep on outperforming the rest of the market.
Cisco Systems
We're seeing the exact same setup in shares of Cisco Systems (CSCO - Get Report) , albeit with a bit of a twist. Cisco hasn't been outperforming in 2015. In fact, shares are down 5.6% since the beginning of the year. But like Altria, Cisco is showing traders an ascending triangle setup. From here, the buy signal comes on a breakout above $26.50.
Why all of that significance at that $26.50 level? It all comes down to buyers and sellers. Price patterns, like this ascending triangle pattern in Cisco, 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 Cisco's shares.
Remember to be reactionary with this trade. It's not a high-probability buy until the breakout actually confirms our buying pressure.
Reynolds American
Altria isn't the only big tobacco stock that looks bullish right now. It shouldn't come as a surprise that big peer Reynolds American (RAI - Get Report) is also outperforming in this environment. That's not all, though. After yesterday's big pop in stock prices, Reynolds looks like it's finally showing us an important buy signal.
Reynolds is currently forming a rounding bottom pattern, a bullish setup that looks a lot like it sounds. The rounding bottom indicates a gradual shift in control of shares from sellers to buyers -- and while it's normally found at the bottom of a downtrend, we're actually seeing it at the top of Reynolds' uptrend this fall. The breakout level to watch in Reynolds' setup was $43.75, a level that finally got broken to the topside in yesterday's session. That's a buy signal.
If you decide to jump on the Reynolds trade, I'd recommend placing a protective stop on the other side of the 50-day moving average. The 50-day has been a good proxy for support lately, so if it gets broken, you don't want to own Reynolds American anymore.
Priceline Group
$61 billion travel firm Priceline Group (PCLN - Get Report) is looking bullish in October. And the good news is that you don't need to be an expert technical trader to figure out why. Instead, the price action in shares of Priceline is about as basic as it gets -- and it's throwing traders an important buy signal this week.
Priceline has spent all year in a wide-ranging uptrending channel. That price channel is formed by a pair of parallel support and resistance lines that have done a good job of corralling this stock's price action since January. Put another way, every test of the bottom of the price channel has been a stellar buying opportunity -- and as shares bounces off of support this week for the sixth time this year, it makes sense to buy that 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 Priceline 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 Priceline can actually still catch a bid along that line before you put your money on shares.
Estee Lauder
Last up on our list of big-name breakout trades is $30 billion beauty product maker Estee Lauder (EL - Get Report) . Estee Lauder hasn't been faring so well recently. Since shares peaked back in early August, this stock has actually shed about 12% of its market value. But even though shares are down, they're not out yet, and a classic reversal pattern could make Estee Lauder the name to own in October.
Estee Lauder is currently forming an inverse head and shoulders pattern, a bullish reversal setup that indicates exhaustion among sellers. 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 $80 level in EL, and it's getting tested this week.
Momentum, measured by 14-day RSI, is the side-indicator to watch in the Estee Lauder trade. Our momentum gauge has been in an uptrend since late August, making higher lows during each of Estee Lauder's three price lows. That's a bullish divergence that indicates that buyers are quietly stepping back into this stock. When $80 gets taken out, upside in Estee Lauder becomes a high-probability trade. As always, there are no sure things in the investing world – so just be sure to keep a tight stop in place if you decide to buy the breakout.
By Jonas Elmerraji
Source:http://www.thestreet.com/story/13309353/1/5-big-stocks-to-trade-for-fall-gains.html?kval=dontmiss
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