These four stocks have been soaring to new highs, all up over 30% in the last three months. For comparison, the S&P 500 SPDR (ARCA:SPY) has also performed well, up over 8.5% over the same time frame, but as of the January 14 close it was just off its prior high. With such explosive price action, the technical outlook provides perspective on when to possibly get out of current long positions, or where to get in if waiting for a better entry point.
Delta Airlines (NYSE:DAL) is up just over 30% in the last three months. Since the start of 2014 the stock has seen an aggressive rally, hitting a new high of $32.07. Upside Fibonacci extension targets are at $32.75 over the shorter-term and $36.75 over the longer-term. These are areas the price is likely to pause or pullback from. A pullback which comes between $30 and $28 presents a buying opportunity. Stops can be placed below the prior swing low at $26.40 for those entries. If the price drops below that, an overall larger move lower is likely underway. Over the last year the 60-day simple moving average has done a good job of approximating entry points.
Southwest Airlines (NYSE:LUV) is up just over 41.5% in the last three months, amidst an accelerating trend. The next upside target is at $21.70, based on Fibonacci extensions. The target beyond is $24.24, although that may be a bit ambitious to achieve before a more significant correction. Pullbacks or pauses are likely to occur near these levels. Between $20 and $18.50 is the buying opportunity on a pullback, with a stop below the swing low of $17.73 on those trades. If the price drops below that a larger correction is quite possibly underway.
United Continental Holdings (NYSE:UAL) is up 55% in the last three months, but has done it in a choppier fashion than the prior stocks. United Continental is also the most volatile of the group, moving about 3.6% per day according to Average True Range (14). After moving predominantly sideways from April to October, the stock broke higher in November. Traditional breakout targets were in the vicinity of $44, which the price has already exceeded. The current price is very near the Fibonacci target of $46.85 as well. Therefore, a pullback is likely to occur soon. A longer-term target is $53, with pullbacks to $41 to $38 providing buying opportunities. Stops can be placed near $36 for those trades.
Allergann (NYSE:AGN) is up almost 35% over the last three months, after experiencing a major turnaround in late 2013. The stock has climbed approximately $25 since the start of December, and the near vertical rise does make analysis difficult in a news driven stock. The January 14 close at $121.22 is in the vicinity of established targets, indicating a potential area of resistance is near. Further upside targets are at $124.75 and $128.75. Airing on the safe side, taking profits if the price drops below $113.50 could be prudent. With very little support until the $100 mark, a drop below $113.50 could lead to a bigger correction than some traders will not want to hold through. With the near vertical price action, entry points for new medium to long-term positions will require a significant pullback to warrant a trade with a discernable reward-to-risk ratio. This entry could potentially be near $110, but possibly even $100 or $95 given the long-term structure of the price action.
The Bottom Line
These stocks still present opportunity despite having been run up already. Buying on continually new highs isn't always the best approach though. The targets allow for traders already in positions to take profits, while pullbacks provide opportunities for new positions. Waiting for the pullback into the buy zones does create the possibility of not attaining a position, but is a more calculated play. A drop below major support indicates an overall change in direction is possibly underway, and the use of stop-loss orders is encouraged. These stocks are all more volatile than the major stock indexes, therefore only those comfortable with volatility and large moves should attempt to trade these stocks.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.