Stocks followed through on Friday’s surprisingly bullish session, with the S&P 500 rallying another 0.88% on Monday. The index is now within reach of multimonth highs, and back within reach of the record high set back in January. Groupon (NASDAQ:GRPN) led the charge with an 11% gain on rumors that it was looking for a buyer. It was hardly alone in its bullishness though. More than 70% of stocks ended the day with a gain on Monday, and more than 80% of the market’s volume was bullish.
And yet, there were still plenty of laggards. Twitter (NYSE:TWTR), for instance, fell more than 5% on news that it was shutting down as many as 70 million accounts it believes are fake accounts. That’s roughly 20% of the total number of accounts the company said were active a quarter ago. And, that’s why traders would be wise to consider new prospects on a case-by-case basis, recognizing that plenty of stocks remain vulnerable to downside action.
With that as the backdrop, stock charts of Range Resources (NYSE:RRC), SBA Communications (NASDAQ:SBAC) and Pfizer (NYSE:PFE) say these names are shaping up as the more reliable trading bets. Here’s what to watch closely.
Range Resources (RRC)
The last several months have been great ones for energy stocks … mostly. Range Resources wasn’t a key participant in that broad uptrend. That’s started to change within the past couple of months though.
The good news is, RRC has still generally lagged, meaning there’s lots of room for upside as long as oil prices remain firm (and it appears they will).
Click to Enlarge • The compelling underpinnings here are evident on the monthly chart. The slow, gradual U-shaped reversal — versus a sharp V-shaped reversal — means the turnaround is unfurling at a pace that doesn’t invite some quick profit-taking. Also on the monthly chart we see a bullish MACD divergence.
• On the daily chart we can see the stock has already cleared the 200-day moving average line. It paused briefly at that mark late last month, working its way into a sideways trading range. Thanks to Monday’s strong surge, though, Range Resources shares are looking like they’ve got new life, renewing the bigger-picture uptrend.
• The forward-looking price-to-earnings ratio of 19 is moderate, but bear in mind that the company has been topping estimates quite often of late. It’s likely the market is underestimating how well Range Resources will do in the foreseeable future.
SBA Communications (SBAC)
Beginning in mid-May, it looked as if SBA Communications shares might sidestep trouble. The stock found support at the $156 mark, pushing up and off of that floor and making its way back above all of its key moving averages. With Monday’s strong selloff, however, things changed for the worst.
The real red flag here is another, much more subtle clue though. It’s not in deep trouble yet, but one or two more bad days could drive the proverbial nail into the coffin.
Click to Enlarge • Look past the daily bars of SBAC for a moment and take a close look at the four key moving average lines on the daily chart. Though the 20-day moving average line (blue) is pointing higher again, broadly speaking, we’ve seen most of the possible bearish moving averages already materialize. It’s a sign that the momentum has already turned for the worst.
• The technical floor at $156 is still a potential support area, as is the $151 level. But if both of those floors fail to hold the stock up, there’s little left to keep the stock propped up.
• While the stage for a dramatic drop may be set, the span between where SBAC is now and where it needs to be to move past the tipping point is effectively wide, and tough to traverse.
Finally, it’s difficult not to respect an iconic blue chip like drugmaker Pfizer. It’s also difficult not to acknowledge that PFE shares are trending higher, even if not in a perfect straight line.
There comes a point, however, when traders are forced to either step up that bullishness, or start taking profits in a big way. PFE shares are reaching that pivotal point, having just tested the upper boundary of a rising, converging trading range.
Click to Enlarge • The ascending wedge, framed by red dashed lines on the monthly chart, doesn’t leave a whole lot of room for continued volatility within those confines. A break out of that narrowing zone is apt to unleash some pent-up trading action.
• On the daily chart, PFE shares have punched through a horizontal ceiling at $36.86. That move pushes the floor, or technical base, up a notch, making it easier for Pfizer to start testing the waters of a higher trading range.
• That being said, be wary of a pullback that gets out of hand in a hurry. The rising/ascending wedge could just as easily mean the stock’s set up for a sizeable fall, should the lower edge of that rising, narrowing trading range fails to continue serving as a floor. Be prepared for either possibility, both of which are trade-worthy events (with the downside move arguably holding more potential).
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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