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.


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