Top Timers' Top Picks

06/17/2014 11:30 am EST

Focus: STOCKS

Thomas Aspray

, Professional Trader & Analyst

Blindly following the herd can be a recipe for disaster in choppy markets like today's, so MoneyShow's Tom Aspray demonstrates how one could use technical analysis to assess whether or not a stock is a good buy.

The stock market seemed to be treading water, Monday, as even though the Dow Utilities were up 1.83%, the action overall was mixed with the advance/decline ratios neutral. Many want to be on the sidelines ahead of the FOMC announcement on Wednesday.

The market pundits seem to be hedged as some make the argument in favor of a 10% correction while others think the market could melt up. On a short-term basis, the major averages need a strong daily close to indicate that last week's correction has ended.

Asian markets were mixed but in the Eurozone the major averages are mostly higher. In early trading, the US futures were up early but have since turned lower. The better than expected economic data on Monday did encourage some bulls. Today we get the CPI and Housing Starts data, which may give the home construction stocks the boost they need to complete their bottom formations.

In the weekend Wall Street Journal, Mark Hulbert reviewed the outlook of those timers who have done the best over the past ten years. As part of the article, he listed four individual stocks that were recommended by at least two of these top timers. A look at the weekly charts of these four picks may help investors decide whether they should be bought at current levels.

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Chart Analysis: The Allstate Corporation (ALL) is a $25.5 billion property and casualty insurance company that has a current yield of 1.9%. It is up 8.8% YTD.

  • The weekly close on March 7 was an upside breakout above the resistance at line a.
  • The weekly trading range (lines a and b) has upside targets in the $60-$61 area.
  • The quarterly pivot and weekly starc+ band are at $61.49.
  • The relative performance has not yet surpassed the 2013 highs, line c.
  • A drop in the RS line below the major support at line d would be negative.
  • The daily RS line (not shown) has been diverging since mid-May and is below its WMA.
  • The weekly OBV broke out in early 2014 and is still slightly above its WMA.
  • There is more important OBV support at line e.
  • There is weekly swing support at $58.28 with the monthly pivot at $57.28.
  • There is monthly projected pivot support at $57.77.

Avis Budget Group, Inc. (CAR) is a $6.03 billion dollar rental car company and is up an impressive 41.4% YTD.

  • CAR reversed to the downside last week after coming close to the weekly starc+ band at $63.30.
  • The monthly pivot is at $55.28 with the rising 20-week EMA at $50.43.
  • The weekly relative performance did confirm the highs two weeks ago.
  • The weekly RS line is above its WMA while the daily is not.
  • The weekly OBV shows a pattern of slightly higher highs but is now quite close to its WMA and support at line h.
  • The daily OBV (not shown) has turned up from its WMA so the strength of any further rally will be important.
  • From June 2013 to October 2013, CAR formed a flag formation and the upside breakout was signaled by both the RS and OBV analysis (see highlighted areas).
  • There is initial resistance now in the $58.35-$59 area.

NEXT PAGE: 2 More Top Timers' Picks

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Helmerich & Payne, Inc. (HP) is a $12.3 billion contract drilling company with a yield of 2.40%. It is up 36.6% YTD.

  • The weekly starc+ band was tested in mid-April as HP hit a high of $117. and it is currently 2.8% below its high.
  • HP had a new closing high last week with the monthly projected pivot resistance at $114.80.
  • The weekly starc+ band is at $118.03 and quarterly projected pivot resistance is at $125.85.
  • The relative performance has turned up from its WMA and did confirm the April highs.
  • The RS line staged a major upside breakout last October as it overcame resistance at line c.
  • The weekly OBV moved back above its WMA at the end of May, triggering an AOT buy signal.
  • The monthly pivot is at $107.53 with the projected pivot support at $105.53.
  • The recent weekly low at $103.54 represents first key support.

Microsoft Corporation (MSFT) is up 12.4% YTD and is part of the Charts in Play Portfolio. It is currently just below the year's high at $41.66.

  • There is monthly pivot resistance at $41.86.
  • The weekly starc+ band and the upper boundary of its trading channel are in the $43.61 area.
  • The monthly pivot support is at $40.05 with projected pivot support at $39.13.
  • The 20-week EMA was tested in early May as MSFT had a low of $38.51.
  • The weekly uptrend, line h, is just a bit lower at $38.43.
  • The relative performance is just holding above its rising WMA with stronger support at line i.
  • The daily RS line turned higher over the past two days and is positive.
  • The weekly OBV is back above its WMA but has not yet confirmed the recent highs.
  • A drop in the OBV below the early May lows would be a sign of weakness.

What it Means: When looking at establishing new positions, you must first determine whether they are in a high-risk buy area and then where you would place a stop. All for of these stocks are quite close to their all-time highs, so following the crowd with these four stocks has too much risk.

In the current environment, stocks that are well below their recent highs and have just completed corrections are favored. The trading is often quite choppy in the summer and those who are not in stocks should still consider the three large ETFs that I recently recommended in A Portfolio That Won't Ruin Your Summer.

How to Profit: No new recommendation

Editor's Note: I will be out for the rest of the week, so the next Charts in Play article will be released on June 23. Though I will be traveling, I will try and Tweet if I see a significant change in the markets.

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