The market environment has provided fertile ground for traders during the first two months of the year, and that trend looks set to continue as we inch our way toward springtime.
A scan of more than 1,500 stock charts has revealed 10 that stand out for their potential to deliver big moves in March, with opportunities from both the long and short sides of the market.
The financial sector, in particular, has more than its share of its ideas from which to choose.
Naturally, it’s important to keep in mind that this is by no means a call to place immediate trades on these stocks. Instead, it is intended to provide ideas for potential trading opportunities in the weeks ahead.
With that in mind, read on for ideas to add to your watch list for March.
Must-See Stock Charts for March: Netflix, Inc. (NFLX)
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While television viewers finally dig into Season 3 of House of Cards this weekend, traders will likely be binge-watching the Netflix, Inc. (NASDAQ:NFLX) chart for signs of where the stock is headed from here.
Trading today just above $482, NFLX is on the verge of surpassing its previous high of $489.29, raising the question of whether the stock is set to break out or fail at resistance.
A breakout would likely be accompanied by meaningful short-term upside due to the high representation of traders in the stock, together with its high (10.6%) short interest.
“Short-term” is the operative phrase here, however. The stock is already up 41% this year and it has a price-to-earnings ratio of 86.5 times forward estimates. Both factors are likely to cap any gains, but the strength of the technical picture means that traders still have an opportunity to play Netflix stock from the long side.
However, the Netflix chart also has the potential for substantial downside if the stock stalls in the coming weeks. A failure to surpass its previous high will create the third leg of a head-and-shoulder top — an important development given that the next stop for NFLX stock is its 200-day moving average at $414.76.
Below this level, there is little to prevent the stock from approaching its 2014 low of $300. This scenario would require a 37% decline in Netflix shares from their current price, but we’ve certainly seen plenty of moves of this magnitude in the past.
The bottom line: the chances of significant volatility in Netflix is very high, and traders have clear technical signals to use to their advantage. However, the combination of valuation, recent performance, and technical analysis shows that there is likely a better risk-reward profile in betting against the stock rather than playing for a continuation of the current rally.
Must-See Stock Charts for March: Invesco Ltd. (IVZ), Franklin Resources, Inc. (BEN)
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The overall strength in financial stocks has made the sector home to more than its share of strong charts, and the Financial SPDR (NYSEARCA:XLF) is just a few cents short of its post-crisis high. Asset managers have performed particularly well in the rally, outperforming the broader sector.
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One reason for this is that unlike banks or insurance companies, they aren’t hurt but the flat yield curve.
This has helped a number of asset managers to break out to new highs, including Blackrock, Inc. (NYSE:BLK), The Blackstone Group L.P. (NYSE:BX) and many others.
However, Invesco Ltd. (NYSE:IVZ) — which operates a traditional mutual fund business and is parent of the PowerShares ETFs — continues to trade short of its long-term resistance at about $41. If the broader market continues to rally, IVZ could be the next asset manager in line for a breakout.
Those with a bearish outlook for this sector also have a stock to target: Franklin Resources, Inc. (NYSE:BEN). BEN stock has lagged its peers, and it has been stuck in a range for nearly a year and a half, with support at $49 to $50 and resistance at $58 to $60.
The stock offers little in the way of growth or a dividend yield, and its earnings estimates are falling. As a laggard stock that remains mired below its 200-day moving average, Franklin Resources looks set to suffer continued underperformance.
Must-See Stock Charts for March: American International Group Inc. (AIG), Charles Schwab Corp (SCHW)
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Asset managers aren’t the only area rich with ideas for traders. American International Group (NYSE:AIG) and Charles Schwab (NYSE:SCHW) are also approaching previous resistance levels following their strong performance of the past two months.
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Neither stock is typically the first that comes to mind as being fast movers, but both have betas well above the broader sector: 1.52 for Schwab and 1.41 for AIG, versus 0.93 for XLF.
Keep both of these stocks on the radar screen for possible breakouts if the broader market remains strong. AIG’s resistance is currently $56.79, and Schwab’s is at $31.
Must-See Stock Charts for March: Johnson Controls Inc (JCI), Goodyear Tire & Rubber Co (GT)
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Strong auto sales have provided a healthy tailwind to components producers in recent months. Since their October lows, the Dow Jones U.S. Auto Parts and U.S. Tires indices have posted gains of approximately 27% and 40%, respectively.
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Johnson Controls Inc (NYSE:JCI) and Goodyear Tire & Rubber Co (NASDAQ:GT) have both been boosted by this trend, and each is now on the verge of resistance that has been in place for more than a year. Both charts look good, but it’s also important to note that analysts have reduced their estimates for both companies’ 2015 and 2016 earnings in the past 90 days.
If this trend continues, the possibility of a breakout will diminish. Still, the proximity of GT and JCI to key resistance levels means that traders need to keep a close eye on both names for the time being.
Must-See Stock Charts for March: Alcoa Inc (AA)
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Alcoa Inc (NYSE:AA) delivered outstanding performance in its rally from October 2013 to July 2014, gaining more than 103% in that span. The stock has flattened out since then, and now it has begun to look tired. Alcoa stock has struggled to make new highs and it has traded below its 200-day moving average.
Moreover, the 200-day moving average is on the verge of rolling over and turning lower, which is typically a negative side. Alcoa can still slide 6.7% and remain above its support at $14, so there is plenty of room before the stock enters a more serious breakdown.
While the company is executing well, it has been hurt lately by weakness in aluminum prices — a factor that prompted JPMMorgan to downgrade the stock earlier this week.
If the trend continues, this chart could begin to look heavy in relatively short order.
Must-See Stock Charts for March: Garmin Ltd. (GRMN)
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Garmin Ltd. (NASDAQ:GRMN) has long been the stock that wouldn’t die. Although some investors have been writing the stock off for years, it continued to produce steady gains from its 2009 low through the middle of 2014.
Since then, it has put in a series of lower highs, and it is now threatening to break support at approximately $49. With both its 50- and 200-day moving averages having rolled over and earnings estimates ticking lower, it looks as though the path of least resistance from here is down.
Must-See Stock Charts for March: Vanguard Total World Stock ETF (VT)
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Finally, the Vanguard Total World Stock ETF (NYSEARCA:VT) offers an interesting perspective on the current state of the world markets.
Despite the underperformance of international equities, the VT ETF, which offers proportional geographic exposure to the global markets, is on the verge of moving out to a new high. The U.S. market is the primary driver of the fund since about half of its assets are invested domestically, but it also carries heavy weightings in Europe (21.9%), Asia (13.8%), and the emerging markets (9%).
As a result, a breakout of the long-established resistance in the $62 to $63.50 range — which also would indicate that the entire market cap of global equities has moved out to an all-time high — is a very bullish sign. Further, it would illustrate that global central banks have succeeded in their collective effort to support the world financial markets (at least for now).
Watch closely to see whether the VT ETF can surpass its old high of $63.35 in the weeks ahead.
As of this writing, Daniel Putnam did not hold a position in any of the aforementioned securities.
