With the market already up nearly 6% this year, the challenge right now is finding trading opportunities that don’t involve chasing stocks that have already run higher. One way to accomplish this is by digging through the charts for breakout candidates.
At the moment, the charts are showing energy and retail to be home to more than their share of potentially attractive trading ideas. And if you’re in the market for short ideas, gold stocks might be the place to look.
Energy Stocks on the Move
The overall energy sector, which has been boosted by rising prices for both stocks and oil, is in strong technical position right now. The Select Sector SPDR-Energy ETF (NYSE:XLE) has climbed to its highest level since August 2011, and it logged a new 52-week high on Wednesday morning. XLE is closing in on its two-year high of $80.48, hit on the last day of April 2011 — an important level because there’s little historical volume above $80 (the ETF traded in the $80 to $90 range for a few months in 2008).
Investors looking to play further strength in the sector have a number of options among stocks with compelling chart setups. First is Royal Dutch Shell (NYSE:RDS.A), which has put in a series of higher lows and is closing in on both its 52-week high ($74.09) and its three-year high ($77.61, set in April 2011). Given that Exxon Mobil (NYSE:XOM) has moved out to new highs in recent months — while Chevron (NYSE:CVX) and Conoco Phillips (NYSE:COP) are close to doing the same — Royal Dutch Shell looks to be in a good position here.
Its single-digit P/E and 4.7% yield certainly don’t hurt, either. Note that the stock may also be found under the tickers RDSA, RDS-A, or RDS/A depending on the quote provider.
The oil services sub-industry is also rich with opportunities in stocks that are closing in on resistance levels. Schlumberger (NYSE:SLB) is about to take out its 52-week high (something Halliburton [NYSE:HAL] has already done), while a number of smaller stocks are close to their three-year highs: Dril-Quip (NYSE:DRQ), Cameron International (NYSE:CAM) and Flotek Industries (NYSE:FTK). While all warrant investigation, the small-cap stock Flotek is probably the most interesting.
Energy is also home to a number of stocks that have been depressed for several years, but that are now moving off established bases and have surmounted their 200-day moving averages. Among these are Superior Energy Services (NYSE:SPN), Nabors Industries (NYSE:NBR) and Canadian Natural Resources (NYSE:CNQ). All three have performed very well in the past month, however, so it pays to give them time to pull back before jumping in. CNQ, which hasn’t run as far as the others, may be the best play of the three.
Gold Stocks on the Precipice
The gold-mining sector also has its share of interesting charts, but for an entirely different reason than energy. The Market Vectors Gold Miners ETF (NYSE:GDX) is approaching its previous low, while the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) is even closer.
So, will the previous lows provide resistance or support? While it seems that every couple of hours a new talking head goes on CNBC to pound the table for this group, a number of its stocks have already fallen below previous support to hit fresh lows. Among the largest names to break down are IAMGOLD (NYSE:IAG), Harmony Gold (NYSE:HMY), AngloGold Ashanti (NYSE:AU) and Compañía de Minas Buenaventura (NYSE:BVN).
Granted, currency movements and company-specific news are playing a role here. But one by one, gold stocks are breaking through support — obviously not a good sign for the rest of the sector.
Ultimately, however, the fate of GDX will be determined by its two largest components — Newmont Mining (NYSE:NEM), which has edged below support, and Barrick Gold (NYSE:ABX), which remains just above its 52-week low. Watch the performance of these names around their support levels before making a move anywhere else in the sector.
Apparel Retailers Approaching New Highs
After phenomenal rallies in 2012, apparel retailers have paused for a breather in recent months. But a recent upswing has brought three to within a few percentage points of their 52-week highs: Macy’s (NYSE:M), TJX (NYSE:TJX) and Nordstrom (NYSE:JWN).
Of these, Macy’s is probably the best opportunity because its valuation has expanded to a lesser extent than the other two stocks in the past three years, and it’s changing hands at a reasonable 10.5 times forward earnings. Still, a major rally in Macy’s is unlikely unless its peers rally in kind. Nordstrom reports Feb. 21, while Macy’s and TJX report on Feb. 26 and 27, respectively.
… And One Final Idea
W.W. Grainger (NYSE:GWW) may be in a boring business — industrial equipment wholesaling — but its chart is among the most interesting out there right now. After multiple hits in the $220 to $222 range, the stock has climbed back above $218 and appears ready for a breakout. The company already reported earnings on Jan. 24.