There are seven stocks that are on the edge of resistance. They have had trouble breaking through their current range in the past. I believe that if any of these stocks can trend past their current price, then the stock could very well trade much higher to a new level. However, if not, then investors can expect a reverse, and for the same pattern that's been occurring to continue, i.e. for these stocks to trend lower. Identifying trading levels are important and in this market could be the difference between gains and losses.
Delta Air Lines (DAL) is currently trading at $8.56 after gaining 20% since Thanksgiving. As you can see from the chart, the stock's traded to this range on three different occasions since the sell-off within the market began. However, it's been unable to breakthrough this level and trend higher. Both times that Delta trended to $8.50 during the last 3 months it reversed to trade near $7 a share. If I were considering an investment in Delta, I believe I would wait and see what happens. If the stock can push through $8.70 and reach $9, then I consider it a buy. However, if it begins to trend lower, then recent history tells us that investors will take profits and it will fall back to $7, which could ultimately present value and a good buyback price.
I love Sandridge Energy (SD), but in this market you must put set aside long-term potential and consider the market's perception of a stock's position. Sandridge is trading at $7.48, which is just shy of its $7.90 resistance. This stock's a little tricky, because it actually shows resistance between $7.50 and $8.00. The stock's been unable to surpass $8 on a consistent basis since the market's sell-off in late July. Much like Delta, if I were considering this stock then I would wait. If it can surpass $8 then it doesn't appear to have any resistance until hitting $10, which would be a 25% upside. It trades very close to crude and I've heard some suggest that Sandridge begins to trend higher once crude reaches $105. And since crude has been trading very close to $100 for quite sometime I believe that it's very possible that Sandridge surpasses this level in the near future.
Goodyear Tire & Rubber Company (GT) is heavily dependent on the undervalued auto industry. It's currently trading at $14.50 and has traded near this level on three occasions since the sell-off within the market. The resistance is weak and can probably be surpassed if the market can continue to trend higher. Yet with a P/E ratio of 35, investors are quick to sell on any discouraging news. If the stock can reach $15 it should trend higher until its next level of resistance is reached, which is $18.
Sirius XM (SIRI) is by far the most frustrating stock and has by far the strongest resistance of any stock on this list. The stock can't breakthrough $1.85 --sometimes it will hit $1.89 -- but will then immediately fall to $1.65. Since July 21, Sirius has reached $1.85 on eight different occasions, only to fall back below $1.70. What makes it so frustrating is that the company has posted two great earnings reports during the last four months. But because the market was trading lower on those days, the stock posted a loss as well. This level has always been difficult to surpass: In February the stock was stuck at this level and it took three months for it to eventually trade higher to over $2.40. I believe it will surpass this level soon -- and will then trade much higher. But because of its recent history, I'm not willing to predict when that time may be.
Corning (GLW) is now trading at $13.80 and is very close to its $14 resistance. This stock trades with two levels of resistance, which is somewhat unusual. The stock's had a difficult time surpassing $14 -- but then when it finally trades above $14 it has a difficult time falling below $14 -- but can't trade above $16 once it's past $14. It's kind of confusing, so to simplify it, I play the stock one way: When it trades above $14, I buy. I am more active in this stock than any stock on the list because I am long Corning. However, the stock has been beaten down as of late with a lagging display segment. Therefore I found that by buying the stock when it surpasses $14 during an uptrend it always returns gains.
Large money center bank stocks are a sensitive subject among investors because there are such strong opinions regarding how to play the volatility of the stock. The bottom line is that money center bank stocks are dangerous but also have more upside. Since Citigroup's loss in late July, the stock has only surpassed $30 on one occasion. The stock is currently trading at $29.12 and has been at this level on five occasions since August. I believe that if it can breakthrough this level -- with the European summit behind us -- that it could very well trade with high gains. The stock has the potential to post large gains very quickly, or post losses very quickly. But now that Europe seems to at least have a plan, I believe that investors will focus on the U.S., which hasn't been reflected in our markets for quite sometime.
The final stock that is near significant resistance is the company that is hoping for a sale: Yahoo (YHOO). First, I find it amazing that Yahoo is trading with only a 6% loss over the last year despite a 25% loss in revenue and earnings year-over-year. However, investors are excited at the potential of the company being acquired and it's now led the stock to its high resistance. From August 8 until October 28, the stock increased by 40% but has now found resistance at $16. If you look back, the stock has had issues surpassing this level for quite some time. The stock has traded very similar to Corning, but during a longer period of time. It has trouble passing $16, but when it finally does, it remains above $16 with new resistance at $18. The stock trades with a $2 resistance level and its price usually fluctuates between a $2 range. Therefore with the stock being at $15.90, I would wait and see if it can surpass $16. And if so then it may be a good time to buy and ride it higher to $17.50 before selling, even though I don't believe the stock is worth $18 on speculation alone.
Having a strong understanding of fundamentals and how to identify value is ultimately what will return large gains. However, in this market knowing when to buy is just as important as the fundamentals, because so much of the market trades on emotion rather than logic. Therefore it's important to know how the market perceives a stock or when its considered overvalued. Because the last thing you want in this market is to be the person who buys at the stock's high and get burned when it falls.
Disclosure: I am long GLW.