Trade Recommendation: Buy DPS and DUK on Breakout

14:59 06/12/2017

The S&P 500 Index (SPX) continues to experience selling pressure as expected. The last five candlesticks show wicks above the body, indicating that attempts to rally have been met with profit taking. The good news for bulls is that volume is beginning to lighten. In addition, the 2,600 support remains intact. These indicators suggest that the bulls are just waiting for selling to be over before they make the next big move.  

As the SPX remains in bull territory, let’s look at stocks that are on the verge of breaking out.  

DPS – Dr. Pepper Snapple Group Incorporated

DPS has been correcting since it made its five-year high in April when it hit 99.47. Bears sent it back to 83.23 where it established support and created a higher low. It used its new found support level as a springboard to push the stock back up to 90. Now, it appears that DPS is posed to break its five-year high.   

Technical analysis reveals a bullish continuation pattern that has been in the works since 2015. The key area to break is 98. Breach of that level with heavy volume should attract momentum traders and give the stock enough momentum to reach our target of 115. Interestingly, there is no known resistance above 98. In other words, the stock should have an easy time to get to 115.

The strategy is to wait for the stock to breach 98 with volume of 4 million in the daily charts. Or, wait for the stock to retreat as technical indicators in the daily chart reveal that it is extremely oversold. Should the stock dip, buy between 88 to 84.

Weekly DPS Chart

Monthly DPS Chart

Summary of Strategy

Buy: Buy breakout at 98 with 4 million volume OR wait for the dip and buy between 88 – 84.

Target: 115

Stop: A close below 84 negates this trade view.

DUK – Duke Energy Corporation

DUK has been in correction mode since 2015 when it failed to hold critical support at 80. Bears sent it back to 65.50 where bulls defended the major support level. The stock rallied and managed to reclaim 80. That victory was short-lived as 80 proved to be a major resistance level. While bears sent the stock back to 72.47, bulls formed a higher low at that level, and used it breach 80 again.  

DUK has momentum as long as it stays above 80. Bulls are using that support level to attempt to convert resistance at 90 into support. Technical analysis shows a bullish continuation pattern that can take to 115. Just like DPS, DUK has no known resistance after 90. Therefore, the stock wouldn’t have much trouble reaching our target.

The strategy is to wait for DUK to reclaim 90 with volume of 4 million in the daily chart. The stock created a gap in the daily chart in November when it tumbled from 90.58 to 89.75. This is favorable for the bulls as a gap fill will most likely cement 90 as a support.  

Weekly DUK Chart

Monthly DUK Chart

Summary of Strategy

Buy: Wait for the stock to turn 90 into support with 4 million volume in the daily chart.

Target: 115

Stop: A close below 86 negates this trade view.

 

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