The stock market has exhibited both higher volatility and declining correlations among individual stocks in recent weeks — a boon to traders inclined to take their cues from technical analysis. The past month has brought the arrival of interesting chart formations in technology, retail, and energy, but the opportunities are plentiful even outside of these areas.
Below are ten of the most interesting charts to watch for potential trades in the coming weeks:
Five Stocks for the Bears
Toll Brothers (TOL): Toll, a high-end homebuilder, has already slid 16% in the past three months, but the chart indicates that losses could accelerate unless the stock can hold support at $30. TOL’s chart has a number of bearish elements, including a string of lower highs and a price that’s currently below a sinking 200-day moving average. Look for downside beta in this name if the broader market cracks in the weeks ahead.
Canadian National Railway (CNI): CNI has run out of room to fall. The stock has broken below both its longer-term trendline and 200-day moving average, and it is sitting right at its last line of defense: support at $93. While railroad stocks — especially those already more than 10% off of their highs — aren’t the first sector most traders think of when it comes to short ideas, it will take less than a 1% move to the downside to put CNI into breakdown territory.
Colgate Palmolive (CL): Colgate’s excessive valuation (23.8x trailing earnings, 18.4x forward) finally appears to be taking a toll on its shares. Off 5.2% in the past three months, CL is sitting right at its 200-day moving average and is just above its lower trendline. While shorting this stock is unlikely to provide much juice for traders, its dangerous technical position is an indication that this could be a good spot for longer-term investors to consider lightening up.
Sherwin Williams (SHW): Like Colgate-Palmolive, the combination of an elevated valuation (26x forward, 18x trailing) and weakening technicals put Sherwin Williams in a perilous position here. SHW has already broken below its trendline, and it is perched right at its 200-day MA and a key support level just below $165. If the market experiences one or two more tough days, this former housing-related darling will find itself in a technical no-man’s land:
T. Rowe Price Group (TROW): Similar to CNI, T. Rowe shares are at their last line of defense after violating their 200-day MA and longer-term uptrend. Now, TROW is held up only by support at $70, which — with the stock trading at $70.59 late Wednesday morning — leaves little room before additional downside before it moves into a hazardous position.
Five Stocks for the Bulls
Qualcomm (QCOM): QCOM shares still have a modest distance to go before breaking out, but the stock is worth tracking nonetheless. Trading in the mid-66s on Wednesday morning, Qualcomm is in striking distance of its 52-week high of $58.50 and its all-time peak of $68.32 set in April 2012. With strong earnings growth in rising estimates, a modest 13.5 P/E on forward estimates, and a PEG of 0.87, QCOM has the fundamental foundation to support a technical breakout. However, watch $60 as the lower support line at which the bullish pattern on Qualcomm is violated.
Yum Brands (YUM): Yum, a stock that has been featured previously on InvestorPlace for its positive technical set-up, took another shot at $75 earlier this month, only to fail and trade back down to its current level near $71. Yum remains a stock to watch for a breakout for now, but a break below support at $65 would indicate that all bets are off until the stock makes it back into the $70s.
CNH Global (CNH): This agricultural equipment manufacturer doesn’t get much attention here in the United States, but perhaps it should: It trades at 9x forward earnings — a slight discount to the 10.4x for Deere (DE) — despite being on track for stronger EPS growth in 2014 (7.9% vs. 5.8%). Investors may therefore want to take a look at this Netherlands-based company, whose shares briefly exceeded two longer-term trendlines earlier this month before giving back ground. From this point, a successful re-test likely signals that a breakout could be on the way for CNH. This potential bullish storyline is violated if the stock breaks its lower trendline at $42.
VeriSign (VRSN): VeriSign has already had a good run — up 9% in the past two months — but the stock could have further to go if the broader tape provides support. The stock has hit resistance at $50 three times, and it could see decent upside on a breakout due to its relatively high 13.2% short interest. The stock isn’t especially cheap at 19 times forward earnings, but analysts’ estimates for both 2013 and 2014 have risen in the past 90 days.
Medivation (MDVN): This company — a provider of cancer treatments with a $4.2 billion market cap — is probably the least known among the stocks on this list, but this is a bullish chart with the potential for a meaningful breakout on a move above $60. Medivation had a 5.6% short interest as of July 31, which may provide extra fuel if the stock is able to break through resistance.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.