Starting with the decline that began at the beginning of April 2012, the S&P 500 has been putting in lower lows, sinking below the April 9 low (1357.38) and more recently the March 6 low (1340.03). This has drawn the uptrend into question for the index, but all stocks are not following suit. A contingent of large capitalization stocks still remain above March and April support levels. This is called relatively strength, as these stocks are acting strong relative to the market. If the S&P 500 gains traction and begins to move higher, look for these stocks to pop higher. (Nasdaq:AMZN), a major online catalog and mail order shopping site surged more than $20 in a single session on April 27 and is so far holding those gains. Since that time, the stock has moved between a low of $218.20 and a high of $233.84, creating a narrowing range. The breakout of that range is likely to play a big role in the longer-term direction of the stocks. A drop below $218.20 has bearish implication and provides a downside target of $205. A rise above the range high at $233.84, on the other hand, means more upside is likely. The 52-week high at $246.71 is the target for an upside breakout.

SEE:The Anatomy Of Trading Breakouts

Archer Daniels Midland (NYSE:ADM) saw a bit of weakness in April 2012, moving below the March low, but it has recovered aggressively. Earnings on May 1 popped the stocks higher and it continues to perform well, although recent action has been more lateral than upward. Support has developed at $31.99; therefore, a drop below that level could drop the stock to targets at $31 and $30. A rise above $33.30, on the other hand, is likely to result in a test of the 52-week high at $33.98, and if exceeded, it could head toward the next target at $36.

SEE: Interpreting Support And Resistance Zones

ACE Limited (NYSE:ACE) is a Swiss insurance company that has been marching higher since October. The uptrend has remained intact throughout that time and continues to trade near it's 52-week high. Support is at $73.48 (May 9) and if penetrated, it is likely to result in a test of the $71 area. Since February, $71 has been a floor and is likely to continue to hold, but if broken, it is a strong bearish signal. There still could upside left in this stock, though. A rise above $76.50 should trigger a test of the 52-week high at $77.42. The target beyond the 52-week high is $80.

SEE: Support & Resistance Basics

Avalonbay Communities (NYSE:AVB) is a U.S. residential REIT that has been in a strong uptrend since October. The trendline for the move is currently being tested, although primary support still lies some distance away. The trendline currently intersects near $142, which is also an old resistance area (should now act as support); therefore, if this area holds on the current short-term decline, it could be a good buying opportunity. A drop below $142 is likely to trigger selling into the $136 to $134 region. The 52-week high at $148.62 is not far away, though, and if the REIT can bounce and exceed that level, the next target is $152.

The Bottom Line
The stocks above have been showing signs of relative strength and therefore present potential upside if the market (gauged by an index such as the S&P 500) can gain traction. Each stock presents its own unique circumstance and levels to watch. Keep an eye on support levels to see if they hold, as this will present a buying opportunity. If support is broken then step back (or stop out) and wait for another opportunity as more downside could be forthcoming. On the other hand, if resistance levels are penetrated, it is a confirmation the stock is still strong and look for the stock to move to the targets indicated.

SEE:Momentum And The Relative Strength Index

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of

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

Related Articles
  1. No results found.
  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. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Trading Center