Global stocks: Buy signal, breakout from price formations

Published October 23, 2019

The market showed a small loss on Tuesday and S&P 500 (SP500) ended the day at 2996 points, which is a decline of 0.36 per cent. The investors do not seem to be giving up hope any time soon and continue to be very optimistic about the overall market health as S&P 500 shows strong development within a rising trend channel both in the medium and long term. The index is testing the resistance at points 3000. This could give a negative reaction, but an upward breakthrough above 3000 points means a positive signal.

Three stocks that we have selected today are on the basis of breakout from price formations like rectangle, double bottom and head-and-shoulders formations. Last week Investtech published an updated research report on return following signals from rectangle formations in stock prices for the four Nordic markets (Sweden, Denmark, Norway and Finland) for the period 1996-2018. For the Nordic markets combined, stocks with buy signal rose by 5.7 per cent the following three months. This is significantly better than benchmark, which on average rose by 3.3 per cent in the same period. The entire report can be studied here. 

I know that we cannot really replicate the results for the Nordic markets for the US, but the idea is that the basis of the price formations are the same and one can expect that good results can be expected from other markets and stocks if we follow the same guidelines. Below are analyses for three US stocks that have given buy signal from price formations in the last couple of trading sessions.

Bank of America Corp. (BAC.US) Close: 31.20

Bank of America Corporation has broken out from an approximate horizontal trend channel both in the medium and long term charts. The stock has also given a buy signal from a rectangle formation both in the medium and long term charts and has broken above the resistance of 31 dollars. Further rise to 36 dollars or more is signalled.

There is support around 30 and 26.70 levels and resistance around 32.80 in the long term. A break above the resistance will give another positive signal and may lead to fresh buying in the stock.

The short term volume balance is positive, which strengthens the price formation. It indicates that more and more buyers are now interested in buying the stock as the price goes up. RSI is above 70 after a good price increase the past weeks. The stock has strong positive momentum and further increase is indicated.

Investtech's outlook (one to six months): Positive

Valero Energy Corp. (VLO.US500) Close: 94.17

A sideways trend of over 10 months has been broken and Valero Energy Corporation has given a buy signal from double bottom formation both in the medium and long term charts. The target from the price formation is given around 112 dollars, but the stock may rise further. There is resistance around 120 dollars or 27 per cent higher, which gives the stock price enough incentive to rise. On the downside there is support around 86 dollars, equivalent to 9 per cent. Hence the reward to risk is very favourable and one can take a long position in this stock with proper stoploss.

The volume balance indicator is positive and supports the underlying breakout. A positive volume balance indicator suggests that there is more buying interest when the price is rising, while investors hesitate to sell at falling prices. This is a sign of strength. In addition, the short term momentum of the stock is strongly positive, with RSI above 70. This indicates increasing optimism among investors and further price increase for Valero Energy Corp..

Investtech's outlook (one to six months): Positive

NVIDIA Corporation (NVDA.US500) Close: 195.61

Investors have paid higher prices over time to buy NVIDIA Corporation and the stock is in a rising trend channel in the medium and short term. This signals increasing optimism among investors and indicates continued rise. Just like the above stock. NVIDIA has marginally broken up through the resistance at 193 dollars and has also given a price breakout from a double bottom formation both in the medium and long term charts. The formation was under construction since November last year. Further rise to 252 or more is signalled. There is support around 178 and 150 dollars.

Talking about the short term momentum, it is strong and positive. The positive volume balance indicator suggests that more and more investors are coming in when the stock price goes up while less and less people go out of the stock in case of any price reaction. This adds more strength and the stock is overall assessed as technically positive in the medium term.

Investtech's outlook (one to six months): Positive

The analyses are based on closing price as per October 22, 2019.

These instruments are traded in currency based on the Exchange or country they are listed on.