As February draws to a close, the financial world is watching intently to see if the major U.S. indices will be able to make the break to new highs.
While this makes for a good spectator sport, the trading opportunities are limited since the breakout levels are not just well-known, but they’re also being flashed continually on CNBC. Instead of watching the Dow Jones, technically oriented traders might be better off watching a handful of individual stocks that could be on the cusp of large moves.
With that in mind, here are the 10 most interesting charts to keep an eye on in the month ahead. The materials, technology and retail sectors look to be especially target-rich at this stage:
Materials in the Danger Zone
After performing well in last year’s second half and inching above its 200-day moving average in January, it’s been all downhill for Arch Coal (NYSE:ACI) in February. Down 23% for the month, the stock is now approaching its previous low of $5.16. This is a telling support level not just for Arch, but for the many coal stocks that are also sliding back toward key levels — most notably Walter Energy (NYSE:WLT) and Peabody Energy (NYSE:BTU).
Coal isn’t the only segment of the materials sector approaching its previous low. Fertilizer stocks Potash Corp. of Saskatchewan (NYSE:POT) and Intrepid Potash (NYSE:IPI) also have taken it on the chin in February, and are working their way back to previous support levels ($36.73 and $18.42, respectively). The next support beneath these levels is about 20% lower — and also several years old — indicating that a break could bring about meaningful downside. Longs should tread carefully and employ stops judiciously based on the current chart positions of these two trader favorites.
Freeport-McMoRan (NYSE:FCX), which plunged in early December after announcing two acquisitions that were poorly received by the market, quickly made up ground but has now round-tripped close to its previous, post-announcement low. The stock is trading at just 6.7 times forward earnings and it sports a yield of 3.9%, but there’s still plenty of downside risk as its shares close in on the 52-week low of $30.54 and its longer-term support in the high 20s.
Investors should take heed of the company’s Thursday announcement that it’s issuing new debt to fund further expansion into the energy business — a sign that there could be more headline risk to come.
Alcoa (NYSE:AA), trading at $8.50, still has 6% to fall before it hits a hard support line at $7.97. There’s no trade here just yet, but keep a close eye on this level as an indication of the general health of the broader materials sector.
Risks and Opportunities in Technology
We might be in a bull market, but you could barely tell from looking at the Technology SPDR (NYSE:XLK). At a time in which all of the SPDR sector ETFs are trading well above their 200-day moving averages, XLK continues to languish just above its 200-day MA.
A break below this level doesn’t necessarily have to be a bad sign for the market as a whole. XLK plunged below this key measure in November — a move that was was followed by a major run-up in the broader market. Still, the fund’s behavior around its 200-day MA will go a long way to helping investors determine whether large-cap tech could begin to outperform or whether it’s going to remain dead money in the weeks ahead.
Perhaps more important is that even a modest decline here could spark talk of a head-and-shoulder top formation in XLK and, more critically, the Nasdaq-100 Index.
Three individual tech names paint a much more optimistic picture than XLK. Qualcomm (NASDAQ:QCOM), Cognizant Technology Solutions (NASDAQ:CTSH) and SanDisk (NASDAQ:SNDK) have all put together very bullish long-term charts, and are on the cusp of breaking out to new highs. All three could be a source of beta in the event that the broader markets continue to climb in March and beyond.
Revisiting the Apparel Retailers
Last month’s “Charts to Watch” article highlighted Macy’s (NYSE:M), TJX Cos. (NYSE:TJX) and Nordstrom (NYSE:JWN) as stocks to watch. That remains true this month — all three remain just short of key breakout levels.
At the same time, however, Macy’s and TJX are hanging just above their 200-day MAs, while JWN broke down earlier this week before rebounding. A number of stocks in the apparel group have already slipped below their 200-days, including Limited Brands (NYSE:LTD), Ross Stores (NASDAQ:ROST) and Kohl’s (NYSE:KSS), while several others are within a few percentage points of doing the same. Performance in this sector is beginning to look sluggish, so those playing for a potential breakout in Macy’s or TJX should take care to use tight stops.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.
