2013 was a great year to own stocks. The S&P 500 SPDR (ARCA:SPY) is up 31.70%, although many individual stocks performed much better than that. These four large cap stocks are all up more than 100% in 2013, and technically still look strong. Over the last 15 years December has been a very strong month, while January has typically seen declines--although not in 2013. Therefore, with a market that many view as getting a little over-heated, even with strong stocks picking the right entry point helps reduce risk and maximize potential returns.
Alcatel-Lucent (NYSE:ALU) has more than tripled in value since the start of the year. Overall the uptrend remains in tact, moving within a trend channel since summer. A 4.15% jump on December 27 moved the price well off the channel bottom indicating it may retest the recent high at $4.68 and potentially beyond. Fibonacci targets are at $4.74 and $5.09 while the top of the trend channel is very close to $5. A drop below the recent low at $4.15 is likely to result in a test of the channel bottom near $4. If the price drops much below $3.75 Alcatel is likely to make overall lower-lows before making a new high as the downtrend will have begun.
The Blackstone Group (NYSE:BX) is currently trading at the top of its five month trend channel, showing it's very strong but at the same time makes risk management difficult. Waiting for a pullback into the $29 to $28 region makes risk a bit easier to control as a stop can be placed below swing lows at $27.64 or $25.60. If the channel continues following the pullback the upside target is $33 to $34. A drop below $28 is a warning sign the overall trend may be in trouble, while a drop below $25.60 indicates an overall downtrend has begun.
Melco Crown Entertainment (Nasdaq:MPEL) has more than doubled in price in 2013, as a result of a strong rally since July. Like many stocks it's also trading in a trend channel. Buying near the lows of the channel near $37 keeps risk controlled and assuming the channel continues allows for about $5 in profit (width of the channel). A drop below $35.50 warns the uptrend may be in trouble, and a drop below significant lows at $32.80 means the stock is likely to see lower-lows before making a new high.
Yahoo! (Nasdaq:YHOO) has been accelerating to the upside since late summer, currently trading right at the top of the trend channel and Fibonacci target areas. While there may be some more short-term buying a pullback from this price area is expected. Picking up the stock around the trend channel bottom at $36 and price support at $34 means risk can be controlled with a stop near $33 or $31.75 (to provide a bit more room). If the price drops much below $33 the uptrend has weakened and is unlikely to make a new high, while a drop below $31.75 signals an overall downtrend is underway. If the price bounces off the buy area, and proceeds to make a new high, the target is the top the trend channel near $43.
The Bottom Line
Like the S&P 500, these stocks are all moving within a trend channel. Buying near the top of the channel may serve very short-term traders, but if looking to hold positions for several weeks or more purchasing near the bottom of the channel keeps risk smaller, and increases the potential gain if the stock does in fact rally once again to the top of the channel. On average January hasn't been a great month for stocks over the last 15 years. That means selective entries and risk management, preferably with the use of stop-loss orders, is likely to become even more crucial as we enter 2014, despite the current strength of the market.
Disclosure - At the time of writing, the author did not own shares of any company mentioned in this article.