The S&P 500 Index has been on a tear since November of 2016. While many investors remain bullish on the index, technical analysis reveals that bearish patterns are emerging. A correction in the coming weeks after a year of unstoppable growth should be healthy to sustain the uptrend. Investors and traders are advised to be cautious, and watch their trail stops carefully as technical indicators show that the index is extremely overbought.
When the market is overbought, the strategy is to move away from stocks that have significantly moved up and favor names that are flashing signs of trend reversals. These stocks are most likely near strong support levels with tremendous upside. Here are two names following that theme.
AKAM has rallied from a major support level at 45 and is now looking to breach resistance at 54. The stock may still slide as 54 is a psychological resistance. When it does, look to pick up the stock as close as 52. This slight dip is ideal to prepare the name for a sustainable breakout. On the other hand, a breakout at 54 with a daily volume of at least 4 million should validate the move.
Initial target for the breakout is 64.
For long term investors, there’s an opportunity to make a considerable profit. AKAM has been on a corrective phase since August of 2015 when it hit the top if the range at 77. However, technical indicators show that the correction has come to an end and the stock is ready to resume the uptrend. A move above 54 with heavy volume supports this assumption.
Should the breakout happen, long term investors can hold on to the name and see whether it can break the major resistance at 77. The move up will attract momentum investors and take the stock to 157. This is a great opportunity to earn serious profits.
This view is valid as long as support at 45 holds.
Weekly AKAM Chart
Monthly AKAM Chart
Summary of Strategy
Buy: Breakout at 54 with volume or wait for stock to slide at 50 – 52
Support: 52 first, 50 next, and 45 last
Resistance: 64, 70, and 77
Targets: 64 and 157
Useless: Only when support at 45 is broken
APC is another name that has rallied from a major support level. The stock has been on a downtrend since September of 2014, but it is looking to reverse its fortunes soon. A bounce at 40 shows that the support level is being defended. Now, the stock is looking to breach 51 to continue its move up.
To sustain its momentum, APC must stay above 51 with 9 million in volume. Maintain this level and we get to 62 first and 65 next. Long term investors can hold to the name and see if it can break major resistance 71. If it does, the next target is 94.
This view is negated if the stock breaks major support at 40.
Weekly APC Chart
Monthly APC Chart
Summary of Strategy
Buy: Breakout at 51 with volume
Support: 48, 45, and 40
Resistance: 62 first, 65 next, and 71 last
Targets: 62 and 94
Useless: Only when support at 40 is broken
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