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Must-See Charts: Bank of America, Sprint - 7937 views
By Jonas Elmerraji
Posted on March 11, 2010
The S&P 500 refuses to back down from its rally after posting gains in eight of the last 10 trading days. That’s a colossal run, particularly given the bearish sentiment that some traders were feeling following the enormous selloff in the first month of 2010. But with the market edging precariously close to a significant resistance level at 1150, can stocks stand a chance going into next week?
To find out, let’s look once again at how some of Wall Street’s biggest names are trading using technical analysis.
Technical analysis uses a stock’s price movements to determine where shares are headed in the future. Technical charts are used every day by proprietary trading floors, the street's biggest financial firms and individual investors to get an edge on the market. And according to some sources, skilled technical traders can bank gains as much as 90% of the time.
Every week, Stockpickr analyzes the technicals for some of Wall Street’s highest-volume stocks and takes a look at how to trade them. Here’s this week’s look at how some of the biggest names on Wall Street are trading technically.
Computer memory maker Micron Technology (MU) is seeing increased bullish volume this week as the stock’s short-sellers covered their positions en masse. That upward pressure is a welcome phenomenon for Micron’s investors, who have seen their stakes in the company slide 7.2% year-to-date. But even better ground could be in store in March.
Shares tumbled along with the rest of the market back in January, finding short-term support around $8.30. Since then, they’ve been gaining momentum until hitting a temporary price ceiling at the stock’s 50-day moving average. Yesterday’s break above the 50-day sends a strong buy signal to traders because it essentially leaves the stock devoid of any significant resistance levels until the $11.40 level.
That play leaves us with decent gain potential and substantially limited downside risk. To limit that downside risk even further, wait for a second consecutive open above $9.60 tomorrow before going long.
2010 has been equally tumultuous for Sprint Nextel (S). Sprint has long been a laggard in the cellular communications industry, trailing top dogs Verizon (VZ) and AT&T (T) in market share as it battled its own financial issues. And although things are looking up for the stock, another stumbling block could prove to be too much for a true breakout play.
This week Sprint shares broke above their 50-day moving average, a bullish move that signals higher prices are in store. And sure enough, it’s likely that Sprint will see shares hit $3.90 before the week’s end -- but they’ll have a lot of difficulty making it any higher.
That’s because with their 200-day moving average sitting at $3.91 right now, it’s going to be tough for shares to break another, even stronger, resistance level this week. Still, a trade could be in store. Wait for a break above the 200-day and ride the ensuing wave of bullish sentiment higher -- but I wouldn’t trade these shares until then.
Bank of America (BAC) made headlines yesterday when the bank announced that it was curbing overdraft fees for debit customers -- instead it would just decline purchases that exceed account balances. That seemingly logical decision has proved to be a popular one for the banking industry, a field that consumers don’t equate with logic and sensibility at the moment. But if the technicals hold true, a sensible trade could be shaping up for BAC’s shares.
Bank of America’s price action formed a bullish ascending triangle in late February, one that broke out above $17 resistance just yesterday. Now, the next price target for BAC is $18.60 -- the much stronger resistance level that the bank hit back in October.
Wait for a second consecutive close above $17 if you want to trade the gap.
To see this week’s trades in action, check out the High Volume Technicals portfolio on Stockpickr.
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