With the S&P 500 hesitating to make a move, one option is to focus on strength (See: S&P 500 Pauses, Focus on Strength), another is to focus on volatility. This option will mostly appeal to short-term traders looking for action during sedate trading conditions. These stocks are ideal for day or swing trading, especially since there are technical areas close at hand which could trigger additional volatility, direction changes or strong continuations.

Sears Holdings (Nasdaq:SHLD) surged in late August and September, and since then has mostly consolidated after reaching a high of $66. The consolidation has taken the form of a triangle pattern, which was penetrated intraday on November 12. By the close the stock had given back much of the daily gains, and closed right on the border of the triangle. A close above $63 (prior swing high) provides evidence the triangle is broken and the price will continue to the upside. $66 is minor resistance, but since the trend is up, the level is unlikely to pose a real obstacle to buyers. An inability to follow through above the triangle is likely to result in more of the whip-saw action seen over the last couple weeks. A break below $56 breaks the triangle to the downside, which will likely result in drop to the$44 to $42 region.

Rackspace Hosting (NYSE:RAX) has had a tough year, starting out with a high of $81.36 and reaching a low of $33.91 in June. After a rally off the June low, a big volume 11.88% drop on November 12 created a short-term double top which could lead to a re-test of the yearly low. There is a support at $43.40 which was breached by the strong down bar, but the price did manage to close above it. A reversal back higher shows support held and a test of the $50 is likely, followed by the $54.25 region if exceeded. On the other hand, if the stock moves back below the November 12 intraday low of $42.13, a move down to $35 is probable.

Vipshop Holdings (NYSE:VIPS) has seen an increase in volatility since the start of October. While the uptrend had been quite strong, a high in early November was only able to marginally exceed the October high before pulling back. This sign of short-term weakness was dramatically reversed when the stock jumped 15.22% on November 12 to a new high. The strong buying pressure could continue for a few days, as there is no specific resistance overhead. A drop back below $80--a former resistance level--is likely to send the stock testing the major trend line near $70.

Western Refining (NYSE:WNR) jumped 9.15% on November 12, and was up even more intraday but pulled back to close right near the high of a short-term trend channel. Based on the channel high near $36 and the intraday high at $37.29, this is all a potential resistance area which could lead to some sizable but choppy moves until a direction is established. A continued push through resistance is likely to reach the 52-week high at $39.42--also a resistance area. Failure to move much beyond $37.29 and falling back into the channel indicates a move back toward the channel bottom between $32 and $31. 

The Bottom Line

Trading volatility is not for everyone. Strict risk management is needed to control potential losses, as sharp moves may occur in either direction. Those who are uncomfortable with fast moving stocks with big potential moves should avoid these stocks until conditions settle. Trading near important technical levels that other traders will also be watching increases the chance of slippage on orders. Yet the risks also creates opportunity for alert traders who are able to quickly adapt to changing market conditions and short-term momentum.

Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.

 

Related Articles
  1. Charts & Patterns

    Analyzing Chart Patterns

    Learn how to evaluate a stock with a few easy-to-identify patterns.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
RELATED FAQS
  1. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  2. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. 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 >>
COMPANIES IN THIS ARTICLE
Trading Center