There’s no denying the last few weeks have been very bullish for stocks with major indices recording multi-year highs, and that’s why MoneyShow’s Tom Aspray is taking a technical look at several stocks that will look attractive when the inevitable pullback occurs.
The weaker than expected Pending Home Sales hit the market in early trading but once again the selling was well absorbed and the close was mixed. While the Spyder Trust (SPY) was down just a fraction, the Philadelphia Housing Sector Index (HGX) was down 1.7%. Bargain hunters in Apple Inc. (AAPL) pushed the Nasdaq 100 into positive territory for a change.
We get more data on housing today with the S&P Case-Shiller Housing Price Index and also a new reading on the health of the consumer with the latest data on consumer sentiment. The stock index futures are down in early trading and a close below Monday’s low could trigger the first meaningful correction for the month.
So what stocks should you consider when the market corrects? This week’s cover story in Barron’s The Next Boom makes the case for the resurgence of the US manufacturing sector. In particular they have picked eight stocks that they expect to benefit in the “gas fueled manufacturing upswing.”
The article provides a very good analysis of the fundamental case for each of the companies, and I would suggest you pick up a copy if you are not already a subscriber. I took a technical look at all eight stocks and isolated those companies that I think look the best from a technical standpoint. These stocks should be considered for purchase on a significant pullback.
Chart Analysis: Calpine Corp. (CPN) is a $9 billion dollar producer of gas powered electricity that made a new 52-week high on Monday as it surpassed its quarterly R1 resistance at $19.19.
- The weekly chart shows that two weeks ago CPN completed a nine month flag formation, lines a and b.
- The 127.2% Fibonacci retracement target is at $19.90 while the width of the chart formation has upside targets in the $22-$22.50 area.
- The weekly relative performance has also completed its triangle formation, lines c and d, but is still below the highs made in 2012.
- The weekly OBV has moved well above its downtrend, line e, as it has risen sharply recently.
- There is first support now in the $18.80-$19 area with more important at $18.25.
- The rising 20-week EMA is at $17.90 with the quarterly pivot at $17.83
LyondellBasel Industries NV (LYB) is a specialty chemical company whose stock price has skyrocketed since it emerged from bankruptcy in early 2010. On Monday it closed below the prior three-day lows, which may be the start of a correction.
- The weekly chart shows a long-term bullish pattern and it started off the New Year by closing well above the resistance at $56.25 (line f).
- It is now just 2.4% below its weekly starc+ band at $65.70.
- There is a wide gap between the current price and the 20-week EMA at $54.30, which indicates that it is overbought.
- The relative performance has confirmed the new price highs and shows a long-term uptrend, line h.
- The on-balance volume (OBV) also shows a long-term pattern of higher highs and higher lows.
- The OBV just barely dropped below its WMA last November as LYB pulled back to its 50% retracement support.
- There is next support at $60 with more important at $57.30 and the quarterly pivot at $54.54.
NEXT PAGE: 2 More Up-and-Coming Stocks