Even though the stock market has been going straight up for more than a year now, there still are plenty of potential trading opportunities among stocks that are on the cusp on breaking out to new highs. In fact, six well-known stocks — and two small-cap names — could offer traders some juice in the coming weeks.
Of course, for those of a more bearish bent, four stock charts are especially vulnerable if the market takes a surprising turn for the worse.
6 Blue-Chip Breakout Candidates
Financial stocks have had everything going their way in 2013, with a recovery housing market, favorable Fed policy, and rising longer-term rates. This favorable backdrop has been reflected in shares of the Financial SPDR (XLF), which closed at a 52-week high on Friday — its highest level since 2008.
Notably, however, this move has been led by insurers and asset managers, but less so by the banks. A look at the largest banking stocks shows that only one — US Bancorp (USB) — has broken out to a new high. If the remainder of this group plays catch-up, an opportunity could be at hand.
The closest is Bank of America (BAC), which closed Friday at $14.92 – just short of its 52-week high. If BAC joins US Bancorp in its move to new high ground, Wells Fargo (WFC), Citigroup (C) and JPMorgan Chase (JPM) are next in line. For now, though, Bank of America represents the most immediate opportunity.
Outside of the banking industry, another financial stock — Goldman Sachs (GS) — appears poised for a breakout if the broader market keeps heading higher. Goldman closed at $164.40 on Friday, within striking distance of its 52-week high of exactly $170.
Financials aren’t the only area where potential breakouts are at hand. Four stocks from a variety of sectors also are on the verge of moving above key resistance points: Walmart (WMT), Yum Brands (YUM), National-Oilwell Varco (NOV) and WellPoint (WLP).
Of these, Yum is probably the most interesting. YUM stock has flirted with the $75 level for nearly two years, and its most recent attempts in the late summer were thwarted when the company missed on its second-quarter earnings. Yum Brands has since rebounded nearly $10 in the past month, and it closed Friday at $73.98 — just short of its 52-week high of $75.13.
The potential might be limited here given the strong recent gain and an elevated valuation, but Yum looks like it’s finally set to reward chartists who have waited an eternity for this stock to break out.
Next, we look at a pair of small caps.
2 Small-Cap Breakout Candidates
Two smaller companies also might be a source of opportunity in the month ahead: Brookdale Senior Living (BKD) and Abermarle (ALB). Neither operates in a particularly exciting industry (assisted living and chemicals, respectively), but their lower trading volume might signal above-average upside if these stocks break out.
4 Potentially Vulnerable Stocks
The four weaker-looking charts belong on traders’ watch lists, but they aren’t necessarily names where you should jump in from the short side just yet. In a market as strong as this one, it pays to let shakier charts play themselves out rather than trying to anticipate a move.
Having said that, eBay (EBAY), Toll Brothers (TOL), and JB Hunt Transportation (JBHT) are all trading very close to key support levels and are struggling to hold above their 200-day moving averages. If the market tires out in the coming weeks, these stocks could prove to be a source of beta on the downside.
Finally, gold stocks — after teasing investors with a late-October rally — have once again proven unable to produce sustained upside. Now, the Market Vectors Gold Miners ETF (GDX) has traded back near its 52-week low. This bears watching, since the inability to hold established lows has led to meaningful additional downside throughout this bear market (as depicted by the horizontal arrows in the chart below). GDX still has some leeway here, with the ETF closing Friday at $24.13 with a 52-week low at $22.21). Still, this low provides a clear reference point where longs should consider cutting their losses.
By the same token, GDX also has a history of delivering big short-term returns when it does bounce off of support (shown by the vertical arrows below). This indicates that gold stocks are at a level where the odds of elevated volatility — in either direction — are rising.
Traders, take note.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.