These charts scream ‘Buy’

 

Sometimes you can tell a lot about a stock simply by taking a quick look at its chart. The act of studying a stock's chart is referred to as technical analysis, and a lot of investors put significant weight in what the charts are telling us.

While not every investor believes in technical analysis, I personally do. Some prefer to dig into a company's financial reports, and their financial ratios, which is known as fundamental analysis.

Don't get me wrong… there are merits to learning a little fundamental analysis. It is important to be able to look at a company's financials and understand whether things appear to be healthy or not. I am not attempting to undermine the importance of fundamental analysis, only presenting my idea that you can profit more from technical analysis.

The stock market behaves in patterns. If you can start to spot specific patterns, and understand what those patterns are telling us about future performance, you stand a pretty good chance at being able to outsmart Wall Street.

But you also have to understand, that there are a lot of other traders out there doing the exact same thing. This is one reason why technical analysis works as well as it does. Once a large pool of investors believes in the trends, it is natural to expect stocks to behave the way everyone expects. They sort of become self-fulfilling prophecies.

Let's look at five charts that are currently screaming buy, and why.

Caterpillar (CAT)

The last couple of years have not been so great for heavy equipment manufacturer Caterpillar (CAT). Weakness in the mining industry has impacted the company's business, but looking at its chart below indicates that it could be headed higher in the weeks ahead. The green line in the chart is its 200-day moving average, and the blue line is its 50-day moving average. What we see in the chart is that the 50-day moving average recently crossed above the 200-day moving average, which is a clear buy signal. The stock is in a strong upward trend, and with the short-term moving average just crossing above its long-term moving average, there could be more gains on the horizon.


Chart courtesy of stockcharts.com

Watsco, Inc. (WSO)

Watsco, Inc. (WSO) distributes air conditioning, heating and refrigeration equipment. WSO dropped below its 50-day moving average at the start of December, but the stock has just recently crossed back above that moving average. Technical traders pay close attention to the 50-day moving average, and take a bearish view on stocks crossing below, and a bullish view on stocks that cross above. If you look at the chart below, you will notice that the stock crossed above its moving average three times in the last year before its most recent move. In each case, the stock continued trending higher. This chart makes a good case to expect that the stock will continue adding to its recent gains.


Chart courtesy of stockcharts.com

Dominion Resources (D)

The following chart on electric utility company Dominion Resources (D) indicates that the stock may be ready to move higher. The stock fell under its 50-day moving average in early December, but has once again crossed above the 50-day moving average. If we take a look back over the last year's price movement on the stock, we can see where this same scenario has played itself out on two different occasions. In both cases the stock was able to maintain its momentum and continue trading higher. With the broader markets trending higher, and hitting new record highs, I see little reason not to expect Dominion to add to its recent gains.


Chart courtesy of stockcharts.com

Kohl's (KSS)

Department8store Kohl's (KSS) recently crossed above its 50-day moving average. This chart is not as clear as some of the others we have taken a look at, but it too indicates that the stock should trade higher. Three times over the past year when the stock crossed above its 50-day moving average it continued trending higher. However, in September it crossed through a couple times without being able to really move higher, but that can be overlooked due to the overall weakness in the broader market during the latter part of September. Consumer confidence rose to a five-month high in December, which should help retailers, and with KSS stock having just crossed above its short-term moving average I think the stock is a great buy candidate at the current time.


Chart courtesy of stockcharts.com

Credit Suisse (CS)

I like the following chart on Credit Suisse (CS) for two different reasons. The first is the recent crossing above its 50-day moving average. Three out of the four times it has done that this year, it has managed to go on to higher in the next month. The second thing that I like about the chart is how well it was able to use its longer-term 200-day moving average for support during the month of December. This illustrates that traders will continue to use that moving average for support moving forward. With the stock currently in an upward trend, the 200-day will continue to trend higher as well, so the stock has steady support that we can reasonably assume it will not trade below. With these two factors combined, I believe that Credit Suisse's chart is definitely indicating that the stock is a good purchase at the current time.


Chart courtesy of stockcharts.com

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.


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Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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