The bulk shippers have gone through a volatile time in recent years, cresting and falling as wildly as ocean waves. However, as day rates have moved up for the transport of commodities around the world, a number of the shipping names have really started to look much more formidable going forward in 2014 and could be developing as some of the best stocks to buy.
The Profit Scanner powered by Recognia has identified a bullish pattern in one of the biggest shipping names in the sector: Navios Maritime Holdings (NM). NM’s chart shows an emerging bullish continuation wedge, an intermediate-term pattern that tells traders that after a brief disruption, the prior uptrend is set to continue.
A bullish continuation wedge represents a temporary interruption to an uptrend, taking the shape of two converging trendlines both slanted downward against the trend. During this time, the bear camp attempts to get the better of the bulls. But, at the end of the day, the bulls win out as the break above the upper trendline signals a continuation of the prior uptrend.
After a few days of consolidation with the broader market, the stock is trading in the $9 range. From there, NM’s bullish continuation wedge carries an upside target of $12.30 – $12.90 that is expected to take approximately 20 trading days to play out.
The Profit Scanner allows users to set customizable stop losses based on their risk tolerances. But if you’re looking for broader guidelines, Recognia tells us this bullish continuation wedge would be invalidated if NM were to drop below a key support level, such as a 200-day moving average around $7. Then this could be either a temporary pullback (which is common) or perhaps a sign that the previous bullish signal was actually a false signal — sometimes called a bull trap.
If such a pullback occurs, a helpful clue is to look at volume. If pricing pulled back on high volume, it may signify a failure of the original bullish pattern, which sometimes leads to a potentially profitable bearish play. However, if there isn’t much volume, it might simply be a temporary pullback to the breakout level, at which point prices may switch direction and resume upward.
While earnings don’t specifically come into play in technical analysis, the charts can foretell price spikes (or slumps) that can coincide with earnings. NM is estimated to report earnings in mid- to late-February. While current expectations are that the company will report a loss, a better-than-expected report could easily send the stock up to the target.
Note: Navios also offers a limited partnership (L.P.) holding with the symbol NMM. At this time, Profit Scanner has not identified any technical patterns emerging in NMM. If, after doing your own analysis, you determine that NM is one of the best stocks to buy that’s an appropriate trade for your risk profile, make sure you’re acting on the correct equity.
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