5 Stocks That May Be Poised To Break Through Chart Resistance
A stock's resistance level is important to keep an eye on because it can serve as an artificial ceiling on a stock's price. The general idea of resistance is that as a stock approaches resistance, selling increases enough to prevent any additional upside. The idea of resistance often works simply because traders believe in it. It does not mean that the stock is stuck in a pattern below its resistance level, but simply that the bulls are going to have to beat the bears if the stock is going to trade higher.
Because stocks often have a difficult time breaking through resistance, it is a major bullish signal once they are finally able to do so. Unless there is a big gap up in the stock, resistance often becomes a new support level once the stock is able to break through. This is important because just like resistance is helpful in determining a stock's upside potential, support lines are good ways to gauge a stock's downside risk.
Let's take a look at five stocks that I believe are about to break through resistance.
Discover Financial (DFS)
Lender Discover Financial has resistance around $52.50, which I think it is about to break. I have this opinion based on its recent technical pattern. As you can see in the chart below, the last time it bounced down from its resistance level on November 13, it fell to $50.92 before rebounding to test resistance. Then it retreated once again from its resistance level, but only fell to $51.50 before finding support and moving higher. Higher lows are a signal that the stock is headed higher. Also, if you take a long-term view of the stock, you see a clear upwards trend that I believe the stock will follow. In October, Citigroup upgraded the stock to Buy and put a $56 price target on the shares. The stock may test resistance one or two more times, but it appears to be ready to break through resistance by the end of the year and to start using $52.50 as a support level as it moves higher.
DFS Daily Chart
[1]
Microsoft (MSFT)
Tech giant Microsoft (MSFT) has finally had the breakthrough year everyone has been waiting for. After three years of sideways trading, the stock took off in 2013, gaining 45.2% year to date and easily outpacing the broader market. As you can see from the chart below, the stock has hit some pretty solid resistance at the $38.15 level. It was last trading at that level on November 13, and has since fallen to $37.63, but I think we are going to see it break through resistance and move even higher. The company just launched the Xbox One, its first new gaming console in seven years, and initial reports show heavy demand. The company is also in the process of vetting a replacement for outgoing CEO Steve Ballmer. A new CEO, coming in with an outsider's perspective is exactly what the company needs. If the company brings in someone with a proven track record, who can shift focus to the company's core assets, then the sky is the limit for Microsoft. I think strong Xbox One sales will push the stock through resistance, and then the stock will remain above that level while the market awaits news on who will take over as new CEO, which is expected before Christmas. In October, Jefferies upgraded the stock from Hold to Buy, and set a $42 price target. From the current price, that target represents 11.6% upside. I am not sure we will see the stock trade up to $42 ahead of the announce.
MSFT Daily Chart
[2]
Dollar General (DG)
As you can see in the chart below, Dollar General (DG) has resistance around the $59.30 level. It has traded up to this level multiple times since the start of October, but has yet to break through to form a new support line. I believe the next time it moves to this level it will break through and form a new support level for the stock. The company reports earnings on December 5, and I believe the report will be strong enough to finally allow the stock to bust through resistance and trade to a new 52-week high. In September, the company reported record sales and net income for its second quarter. Same-store sales growth was 5.1%. Consumer confidence has weakened in recent months, and I believe consumers have become more cost conscious. This bodes well for discount retailers like Dollar General, and I believe its upcoming earnings report will reflect that.
DG Daily Chart
[3]
Tiffany (TIF)
Luxury retailer Tiffany (TIF) is once again testing resistance of $82.50. It tested this level back in August, and then twice in November. The stock is currently sitting at $81.07, so if it is able to gain 1.8% from its current level it will once again test resistance. I think the company is going to report strong quarterly numbers on November 26, which will push the stock through its current resistance on way to a new 52-week high. This has been a good earnings season for high-end retailers, with positive earnings numbers already coming from Michael Kors (KORS), Fossil (FOSL), and Nordstrom (JWN). I believe Tiffany will follow suit, helping the stock break through resistance.
TIF Daily Chart
[4]
Advanced Auto Parts (AAP)
Advanced Auto Parts (AAP) is currently testing resistance at $100. The stock got a big boost in October following news of a $2 billion acquisition of General Parts International. Investors reacted strongly to the news because it helps Advanced Auto Parts expand its geographic presence. After hitting a 52-week high of $102.82, the stock dipped below $100 where it has remained for the better part of November. However, it appears ready to break through this resistance, and establish $100 as its new support level. Business is good for the company, which earlier this month reported a 22.3% jump in third-quarter earnings, and topped analyst's estimates. Credit Suisse recently set a price target of $130 on the stock, and I think once its breaks through $100 it will slowly work its way up close to that level.
AAP Daily Chart
[5]
Courtesy of Michael Fowlkes, market intelligence center [6]