Hop on Stocks Breaking Out From Multi-Year Downtrends

The S&P 500 Index (SPX) continues to stay below the 2,600 mark and is currently trading at a narrow range of 6 points over the last two days. The index is tightening which means it is bound to make a move soon. SPX has managed to recover its immediate support at 2,580 which is an encouraging sign for the bulls. Investors are advised to closely look at this support. Preserve this level, and we have a bullish bias. Breach it, and the likelihood of bears taking more control increases.

While we wait for the index to give us a clear direction, let’s continue looking at names that offer substantial reward with limited risks.

CHRW – C. H. Robinson Worldwide Inc

The stock has been on a long and ugly downtrend since it crashed in 2011 after posting an all-time high of 82.61. It shed over $30 in value and found strong support at 50 where it consolidated for nearly two years. The stock has been rallying since and has recently managed to take back 80 before succumbing to selling pressure and retreating to 78.  

Weekly and monthly charts reveal that bears are in control, but this is a good sign for the bulls. The stock needs to form a solid base to take out heavy resistance at 82. In other words, a slight dip is in order to give CHRW legs to breach its all-time high and post a new record high.

The best case scenario is for the stock to retreat to 76 – 73 where you can accumulate shares as it briefly consolidates. The correction gives us a bullish reversal pattern which can be strong enough to break resistance at 82 which will attract momentum traders and form a clear path to the target of 124.

On the other hand, the stock may continue to trade in a narrow range between 82 – 78. This could also serve as the base to push it above 82. If this is the case, buy at a breakout price of 82 with volume of at least 5 million.  

Weekly CHRW Chart

Monthly CHRW Chart

Summary of Strategy

Buy: between 76 – 73 OR breakout at 82 with volume

Support: 73, 70, and 67

Resistance: 82

Target: 124

Useless: Breach of 67 support negates this trade call

BMY – Bristol-Myers Squibb Company

BMY has been on a long downtrend since 2001 as the monthly chart reveals. It found crucial support at 16 dating back to 2008 and has not looked back since. Eight years later, it attempted to breach major resistance at 75 but was viciously sent back by bears to 60 where it is now consolidating for the next leg up.

Weekly chart shows that the key level to break is 63 with volume greater than 43 million. Take that level out and the next stiff resistance is at 70. BMY must establish a solid base at this level to have a shot at breaching major resistance at 75. Breakout at that level gives the stock a clear path to the target of 135.

Buy zone is between 60 to 55. Technical indicators show that the stock doesn’t appear to be ready for launch so that gives you time to accumulate shares. Next support levels are 52, 50, and 47.

Weekly BMY Chart

Monthly BMY Chart

Summary of Strategy

Buy: between 60 – 55 OR breakout at 75 with volume of 104 million

Support: 55, 52, 50 with line in sand at 47

Resistance: 63, 70, and 75

Target: 135

Useless: Breach of 47 support negates this trade call

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.