by Daniel Putnam | May 27, 2014 8:33 am
The S&P 500 Index has been on the verge of breaking through the 1,900 level for almost three months now, and it finally managed to surmount this obstacle with Friday’s close at 1900.53.
If the index can remain above this level and sustain a move above its previous high of 1902.17, it will be an extremely positive sign for the market — especially since it comes at a time of soft economic data and pronounced weakness in the small-cap sector.
Traders who are looking to play such a breakout can always stick with the index itself through a play on the SPDR S&P 500 ETF (SPY). However, those who are looking to pick up some extra beta can focus on individual stocks that also are on the cusp on breaking out, and that could be pushed above previous highs in a broader market move.
With that in mind, here are six stock charts to watch for possible breakouts:
Click to Enlarge Time Warner (TWX) is probably the most interesting of the six stock charts.
TWX stock closed Friday at $70.68, just short of its 52-week high of $70.77. TWX stock has performed well so far in May, gaining nearly 7%. Now, it’s trying to surmount the $70 level for the fourth time in the past eight months.
Time Warner looks very healthy from a technical standpoint, with rising volume and both its 50- and 200-day moving averages moving in the right direction.
The fundamentals also support a breakout, as TWX has a forward P/E of 15.3 on estimated growth of 14.2%, a 1.8% yield and rising earnings estimates for both 2014 and 2015.
Keep a close eye on this one — TWX stock is in good enough shape that it might stage a breakout even without help from the broader market.
Click to EnlargeLike Time Warner, Occidental Petroleum (OXY) is an inexpensive stock that’s trading just below resistance. Occidental has multiple attempts to take out the $98 level in the past year, including one short-lived breakout in November that reversed the next day.
OXY stock is in a position to trade higher in a favorable market, given that its moving averages are headed higher, its estimates are rising and its forward P/E is a reasonable 13.3.
And Occidental isn’t alone. Other energy stocks that could be in line for a possible breakout in the coming weeks include Chevron (CVX), National-Oilwell Varco (NOV) and Pioneer Natural Resources (PXD).
Click to Enlarge The French company Sanofi (SNY) probably isn’t the first name that comes to mind when U.S. investors think about pharmaceutical stocks, but it has quietly put together a nice chart that shows the potential for second-half upside.
At Friday’s close of $52.79, Sanofi stock is 6% from exceeding its all-time high of $55.94. Still, the basis for further upside is in place in the form of a 13 P/E, hefty 3.6% yield, rising estimates and expectations for double-digit growth in 2015.
Click to EnlargeSanofi isn’t the only healthcare stock poised to move higher in a rally. AbbVie (ABBV), the pharmaceutical concern that was spun out of Abbott Laboratories (ABT) in 2012, has attempted — and failed — to get through the $54 barrier on multiple occasions in the past year.
At Friday’s close of $53.95, ABBV stock is again set to make a run at this resistance point. The stock has run up quickly from $46 in just a little more than a month, which might cap the additional upside on a breakout, but the strength of this resistance indicates the potential for a quick $2 to $3 move.
Also keep an eye on Abbott itself, which is near resistance of its own in the $40 to $41 range.
Click to Enlarge The waste management business might not be exciting, but technicians might find themselves giddy after a look at this chart.
Republic Services Group (RSG), which faces resistance at $35.61, closed Friday at $34.91. While the technical outlook is positive, be mindful that growth is expected to be flat this year and that full-year earnings estimates have ticked slightly lower in the past 90 days. Still, the long-term nature of the resistance for RSG indicates the potential for meaningful short-term upside on a breakout.
RSG stock also has defined support, indicating that there might be opportunity here in a down market as well as a rally.
Click to Enlarge Finally, traders poring over stock charts should watch Shaw Communications (SJR). At Friday’s close of $24.99, the stock only needs to rise another 1.8% to take out near-term resistance at $25.46, possibly setting up a move back to its all-time high near $30 set in 2007.
SJR stock features a dividend yield of 4.1%, so at the very least, investors are getting paid to wait.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.
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