As the S&P 500 makes a run at its 2007 high, many stocks have already arrived there. Some big name companies have been making all-time highs, and the uptrends are looking very strong. But is this rally sustainable? Recent surges show strong buying interest, but rarely are such aggressive moves sustainable. Here we look at the possible entry points and danger signals in these high flying stocks.
Johnson & Johnson (NYSE:JNJ) has had a great start to 2013; starting out the near $70 it closed Jan. 29 at $74.41, up about 6%. The stock recently broke out of a triangle pattern, which began in October, providing a target price of $76. Therefore, the stock looks to have a bit more room to go on the upside in the short term. Volume was quite light on the breakout though, so those looking for a better (lower) price in the coming weeks could get it. There are two old resistance levels that should now provide support on pullbacks - approximately $70 and $68. This is likely to provide a better long-term entry point. Watch the trendline that began in 2011; it currently intersects near $64 and a drop below that indicates further downside is likely.
SEE: Triangles: A Short Study In Continuation Patterns
Procter & Gamble (NYSE:PG) surged over the last few sessions, creating a new high. In 2007 the stock reached $75.18, on Jan. 29, 2013 it reached $75.31 intra-day, and closed at $75. For reaching such an important level, volume was quite light. The rest of the week will be important as a failure to really jump above $75 will likely trigger selling. On the other hand, a strong finish to the week could bring in more buyers, but to make it convincing volume will need to pick up. If you are patient, and are willing to potentially miss out - there is always a trade-off - wait for a pullback and look to pick the stock up in the support band between $71 and $68. If it drops below $66 it is probably heading to test $60, or lower.
SEE: Technical Analysis: Support And Resistance
Marathon Petroleum (NYSE:MPC) has been relentlessly making all-time highs since mid-2012. Debuting in late 2011, there isn't a lot of price history to go on but the surge higher this January caught my attention. And the 4.8% jump on Jan. 29 was on increased volume - a positive sign. I anticipate the stock will start to hit significant resistance here though, between $72.50 and $75. This is based on a predictive trend channel and prior surges in the stock. Therefore, in the short term I don't see much upside, but there definitely could be in the longer term. Ideally I would like to see the stock pull back towards the trendline, which is currently interesting near $63. At that price the potential future reward is enough to counterbalance the risk. If the stock drops much below the trendline, I would cut my losses and consider the uptrend over.
SEE: Interpreting Support And Resistance Zones
Debuting in mid-2012, Phillips 66 (NYSE:PSX) also doesn't have much price history to go on. It too has been in a strong uptrend since then, making continual new highs. The stock has stuck pretty closely to its upward trend channel ... that is until Jan. 29 when it jumped 4.89%. The stock has moved above the trend channel, and given the short price history it feels like a bit of a gamble up at these levels. Volume is steady which is a positive, and it's quite possible the trend could accelerate and the stock could reach the mid-$60s over the next couple months. The stock could be a bit over-extended though, in which case waiting for a pullback is the safer bet. The trendline intersects near $52, and if you can pick it up near there, I'd put a stop at $50 and a target of $60. A drop below $50 will break the trendline and a recent low, signaling a further decline is likely to ensue.
The Bottom Line
When looking at stocks that are flying higher, making all-time highs or not, the most important thing to do is to determine how you can make money from it. Buying blindly isn't the answer. Sometimes patience is required in order to limit the risk. All-time highs should also attract some attention, that means volume should increase, and not just the price.
Charts courtesy of stockcharts.com
At the time of writing, Cory Mitchell did not own any shares in any company mentioned in this article.