Thus far, 2016 has been a curious ride. And while this could arguably be said about any period in time, the current ultra-low interest rate environment makes things somewhat trickier than usual.
We live in unprecedented times where bond yields are at near record lows, and increasingly we are even seeing negative yields. This negative-yield environment has been supportive for the S&P 500 thus far, but it doesn’t speak to much economic growth.
More than ever, this current global market environment requires investors traders to remain open to all possibilities. Will European banks further implode in the coming three to six months? Will Brexit fears ultimately spill into equities? Will the U.S. presidential race start to stir things up as we head into the fall? These are but a few issues investors have to grapple with. And while many investors in the July-August period will have vacation time on their mind, I would be remiss not to point out that this exact period has seen plenty of volatility bursts in the past such as the 2011 European debt crisis.
So which stocks are the ones most likely to make big moves in an environment like this, and which way will they turn? Here are 10 big-name blue chips with charts that hint at breaking out in the second half… or, in some cases, breaking down.
Bank of America Corp (NYSE:BAC)
Click to EnlargeAs we push onward into the second half of 2016, the financial sector — and in particular the banking stocks such as Bank of America Corp (NYSE:BAC) — will remain front and center on my screens. For if interest rates continue doing what they have been doing (going lower) then these banks will continue fighting an uphill battle, which in turn is likely to keep the broader stock market somewhat capped on the upside.
In terms of U.S. banks, Bank of America at present displays one of the clearer bearish pictures, although none of the large U.S. banks look good through a technical lens. This combination of ultra-low interest rates and low and slowing economic growth traditionally hasn’t been a great time to buy banking stocks.
On the multi-year chart we see that BAC stock after breaking below horizontal support in early 2016 dove deep into its February lows. As the broader market began to bounce however so did this stock and by April it had rallied all the way back to the horizontal line on the chart around the $14-$15 area which had previously acted as support. As support became resistance, BAC stock rejected this technical confluence resistance area and has been working lower again since.
At the very least, considering the aforementioned broader market environment as well as the technical look from the charts, BAC stock is capped on the upside but more likely will need to re-test its February lows in the $11 area before better support can be discussed.
Wal-Mart Stores, Inc. (NYSE:WMT)
Click to EnlargeMoving to retailers, Wal-Mart Stores, Inc. (NYSE:WMT) stock year-to-date has rallied nearly 20%. That can be attributed to the stock’s more defensive nature, as well as its currently 2.7% dividend yield. But also worth noting is that its performance in 2015 was miserable as the stock fell about 25% on the year, and thus entering 2016 the dividend yield and defensive nature of the stock looked relatively even more attractive.
As WMT stock however bottomed out in late 2015, it began a steep but orderly ascent that recently brought it back to a previous area of technical support. As is clearly marked on the chart, WMT has worked its way back up to this horizontal line around the low $70s. This technical resistance line also matches up with an exact 50% retracement of the sell-off from the 2015 highs down to the 2015 lows.
As such, this horizontal line of resistance offers technical confluence resistance where WMT stock may struggle. This is important because a good part of the recent rally in the broader U.S. stock market can be attributed to defensive stocks rallying. If those types of stocks including WMT stop rallying, then the broader market will find it more difficult to rally again.
Intel Corporation (NASDAQ:INTC)
Click to EnlargeSemiconductor companies such as Intel Corporation (NASDAQ:INTC) remain an important tell for the tech sector, which in turn is important for the broader market.
INTC stock, over the past eighteen months or so has continually narrowed its range, which ultimately will lead to a better directional move. Key resistance is somewhere in the $33 to $34 range while support is in the high $20s.
From a momentum perspective, the stock looks tired here in the near-term, which is to say that even if we were to see a break above the $34 area in the near-term I would not yet trust a breakout type of move and would rather want to wait for more consolidation before believing a breakout rally.
Another way of looking at it is that the longer that INTC stock remains in this narrowing wedge formation, the more a clear breakout move in technology as a sector will likely also remain on hold.
Amazon.com, Inc. (NASDAQ:AMZN)
Click to EnlargeOne of the biggest success stories on Wall Street lately has been Amazon.com, Inc. (NASDAQ:AMZN) asAMZN stock rallied back very strongly from the depths of its February lows.
From its late 2015 highs down to the February lows the stock had lost about 30%, which is not an atypical corrective move for a strong trend following stock like AMZN. The rally off the February lows, meanwhile, adds up to about 55% and has also pushed the stock to fresh all-time highs.
Considering the steep rally off the February lows, which both in duration and percentage terms looks exhausted, in coming months I am not one for chasing this stock higher but rather want to be a seller of any further strength while getting out of the stock’s way during earnings announcements.
Ultimately, I think AMZN is a better buy again in the $600 – $650 range. For the record, however, I do remain a long-term bull on Amazon stock.
Netflix, Inc. (NASDAQ:NFLX)
Click to EnlargeUnlike AMZN stock, shares of Netflix, Inc. (NASDAQ:NFLX) remain in a well-defined down-trend with a series of lower highs after topping out in late 2015.
While NFLX stock also rebounded sharply off its February lows, it only managed to retrace about 62% (an important Fibonacci measure) before finding resistance in April and moving lower again.
In the bigger picture, this stock remains in a consolidation phase that really has been in place since August of 2015. The three lower highs thus far in 2016 (red arrows) are visibly pushing weight on the stock’s crucial horizontal support area in the low to mid $80s and the longer NFLX stock doesn’t make a higher high versus these lower highs, the stock increases its odds of eventually taking out horizontal support and falling into the low to mid $70s.
In other words, barring a move that holds NFLX stock above the $105-$110 area I want to be trading the stock from the short side.
Facebook Inc (NASDAQ:FB)
Click to EnlargeFacebook Inc. (NASDAQ:FB) remains one of the better trending stocks in recent years. While stocks like Netflix and Amazon.com have seen sharper rally bursts, the move higher in Facebook has been much less erratic and thus more orderly.
It doesn’t take more than a quick glance at the chart of FB stock to see this. Note that since about the mid point of 2013, FB stock has been holding nicely above its red 200 day simple moving average on both a weekly and daily closing basis. We can also draw simple parallel lines such as I did on the chart so as to bring out more visibly the structure of the two-year trend higher.
A simple but effective trend-following strategy that I continue to like being applied to FB stock is to buy stock at bottom of range upon a confirmed bullish reversal and to take profits at top of range. This current structure also has the benefit of clearly telling us when the up-trend is in jeopardy, which would be the case if and when FB stock drops below both the up-trending channel and the 200 day moving average on at least a daily closing basis.
Until such time, FB remains in this defined up-trend.
Delta Air Lines, Inc. (NYSE:DAL)
Click to EnlargeAirline stocks have seen plenty of turbulence in 2016. As a slowing global economic environment keeps these stocks from rallying back to their 2015 highs anytime soon, an oversold rally may soon be in the cards.
Airline stocks such as Delta Air Lines Inc. (NYSE:DAL), while sensitive to the economic environment, are also exposed to the fluctuating price of oil. In reality, airlines are actively hedging their oil price exposure, but many investors believe crude alone can lead to meaningful moves.
DAL stock, after tumbling meaningfully year-to-date, recently came into a better technical area of support around the $34 – $35 area thanks in part to rallying oil. This area is not only horizontal support as marked by the blue box but also matches up with the red 200 week simple moving average. From a momentum perspective the stock is also well-oversold, all of which could see a marginal lift in DAL stock in coming weeks/months particularly should the price of oil resume its down-trend.
Twitter Inc (NYSE:TWTR)
Click to EnlargeThere is little doubt that Twitter Inc. (NYSE:TWTR) as a company and as reflected by its stock price has been going through some internal struggles.
With all of the potential that the Twitter platform has, investors (me including) have seen little steps by the company to make it easier to get information out of it. For all of the news that gets disseminated on the Twitter platform on a daily basis, it is still challenging for the average user. Some recent improvements including live sports streaming, however, have gained better traction and the stock has lifted meaningfully off its May lows.
I am not one for throwing darts on a board, but so as to include one lottery ticket chart in this article of ten charts I still believe that Twitter is a potential buyout target in the next six months or so. Estimates vary but a takeout price somewhere in the low to mid $20s seems appropriate, if and when. Rather than buying TWTR stock however I am looking to take a stab at this by buying six month options (January 2017) with an $18 strike.
Apple Inc. (NASDAQ:AAPL)
Click to EnlargeOf course, no list of blue chip stocks to watch would be complete without Apple Inc. (NASDAQ:AAPL) stock.
While I remain a long-term bull on Apple and believer in the company, in the intermediate term I must respect the fact that since the 2015 highs the stock continues to form a series of lower highs. The stock is now once again near its critical confluence support area in the low $90s which is made up of the rising black support line from the 2009 lows, the red 200 week simple moving average, and horizontal support.
The series of lower highs is visibly weighing on this support area and a break below $90 on a weekly closing basis could get another leg lower into the mid $80s underway.
SPDR S&P 500 ETF Trust (NYSEARCA:SPY)
Click to EnlargeThough admittedly not a “stock,” let’s finish with the S&P 500 as represented by the popular SPDR S&P 500 ETF Trust (NYSEARCA:SPY) SPY ETF.
Much of the reason why this benchmark large-cap index has held up so well year-to-date while most sectors and other equity indices struggled has to do with this current yield-starved environment. Admittedly, a 2% dividend yield from a blue chip stock smells more appetizing than the paltry yields we currently get from the U.S. Treasury market…and let’s not even talk about the negative bond yields we see sprinkled throughout Europe.
Yes, the S&P 500 has been coiling up below well-defined horizontal resistance that on the SPY etf equates to about $213 and the longer this coiling up persists the better the odds ultimately are of a successful breakout higher. However, in my opinion even if we were to see a yield-chasing breakout in the S&P 500 in the near to intermediate term, I have serious doubts such a move would be sustainable through a 6-12 month lens.
Both economic growth and corporate top and bottom lines have been slowing for the better part of the past eighteen months and market breadth is also concerning. As of this writing the second quarter earnings season is about to kick off, which could lead to a make or break breakout attempt in the SPY. With all of this in mind, I do not think the second half of 2016 will get significantly ‘easier’ than what we witnessed in the first six months, but for the SPY to stick a more believable breakout into the 220 area I need to see a daily close above the $213 level.
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