These stocks are in strong upward trend channels, but are currently trading near the lower support line. If the channel holds, there is potential for "trend channel bounce trades," as the price rallies off support and heads back toward the top of the channel. Typically these trades are low risk, since the entry point is near the support line and stop-loss price. 

Baxter International (NYSE:BAX) has been moving higher within a well defined trend channel since the start of the year. The lower channel line currently intersects near $68.75, although it looks like the stock may already be heading higher before reaching that level. On August 2 Baxter made an intra-day low of $69.31, before reversing course and closing August 6 at $72.03. The upper channel line intersects near $75, which is an area of likely resistance. The risk/reward on this trade isn't ideal given that the profit potential is about $3 and the risk is also about $3 if a stop is placed slightly below $69.31. Therefore, if already long there is likely more upside, but if you're looking to get long being patient and waiting for a bit of a pullback is likely the best option.



United Parcel Service (NYSE:UPS) started its current trend channel in February. The lower channel line is at $86, so I'd be looking to go long anywhere between $87.50 and $86, with a stop-loss order in the $85.50 area. The upper channel line intersects near $93, so the profit target for the trade is just below this. Other than a price surges in May and July though, the price action has been fairly sedate. Therefore, the price will need to breakout above  $89.25 resistance in order to potentially reach the $93 target.



SEE: Target Prices: The Key To Sound Investing

Boeing (NYSE:BA) has been in a very strong advance since March, but is currently heading toward the lower part of the rising trend channel. Channel support is at $103.25, so entry between $103.25 and $105 is looking really good. I'd put a stop near $103 and a target near the upper channel line at $113



Interpublic Group (NYSE:IPG) isn't near it's lower channel line right now, but it looks to be heading there. Toward the end of July the stock broke higher out of the trend channel and then quickly reversed, indicating selling pressure near channel resistance. Therefore, a pullback toward $15, and channel support, is possible. I'd look to get in anywhere between $15 and $15.50 with a stop-loss just below $15. The target is the upper channel line and resistance just above $17.



SEE: Trading Is Timing

The Bottom Line
Trend channels highlight rhythmic movements in price. As long as the channel holds, these movements are exploitable by buying near the lower channel line and selling near the upper line. Channels don't last forever though, so a stop-loss order should be used to control risk. Also, it is recommended that you wait for the price to begin moving higher off the lower channel line before going long. This provides a little extra assurance that the support level has held and that the price will likely start to head back toward the upper channel line.

At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article.

Charts courtesy of StockCharts.com.

Related Articles
  1. Economics

    Target Prices: The Key To Sound Investing

    Learn how to evaluate the legitimacy of target prices and why investors should trust these over ratings.
  2. Forex Education

    Trading Is Timing

    Learn how to make gains even if you don't get in at the right time.
  3. Investing Basics

    Buy-And-Hold Investing Vs. Market Timing

    If volatility and emotion are removed, passive, long-term investing comes out on top.
  4. Budgeting

    The P/E Ratio: A Good Market-Timing Indicator

    Check out the returns this newer technical analysis tool would've yielded over the period from 1920 to 2003.
  5. Active Trading

    Market Timing Fails As A Money Maker

    This strategy is popular, but can you do it successfully?
  6. Active Trading

    Timing Trades With The Commodity Channel Index

    We introduce how to use this oscillator, which identifies cyclical trends, for determining buy and sell points.
  7. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  8. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  9. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
  10. Chart Advisor

    Strategizing for a Market Fall...or Rally

    The downtrend isn't confirmed yet, so be prepared with trades for whether the stock market rallies or continues to fall. Here's how to do it.
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  3. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  4. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>
  5. How was the Fibonacci retracement developed for use in finance?

    The use of Fibonacci retracements in stock trading was popularized by noted technical analysts W.D. Gann and R.N. Elliott. ... Read Full Answer >>
  6. How was the stochastic oscillator developed?

    The history of the stochastic oscillator is filled with its own controversies and inconsistencies. Most financial resources ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!