The stock market is in an interesting position as we kick off 2012. The market started the year by closing sharply higher despite giving back some intraday gains. After some early weakness the following day, the stock market quietly digested its gains and ticked higher by the end of the day. It is still up in the air as to what the next move is in the short term, but if the markets can quietly pause in this area and continue to digest some of the rally that began in late December, its possible that we could see a retest of last year's highs in short order.
There are many individual stocks currently testing important resistance levels, which is to be expected with the market indexes at crossroads of their own. If the markets do head higher, then these stocks could be expected to successfully clear resistance and establish new trends. World Fuel Services Corporation (NYSE:INT) is a good example of a stock currently testing a key level. The $43 area has been holding it back for over a month, with the 50-day moving average supporting the stock since October. As INT presses against $43, each pullback has become progressively shallower. Something has to give soon, and if the markets can follow through higher, the likely direction for INT would be above this level and new all-time highs.

Oceaneering International, Inc. (NYSE:OII) is another stock testing a resistance level. This stock has been acting well after breaking out last November. The $44 level held on a recent pullback and should be act as a floor for the stock moving forward. OII is currently consolidating above the prior base and any strength that carries it above this trading range would also take it to all-time highs.

Donaldson Company, Inc. (NYSE:DCI) is also just under all-time highs and consolidating in a tight range. DCI cleared a base in October and rallied over 10 points higher. It has been pressing up against the $70 level since November without showing any real weakness as it consolidates the prior rally. Its 50-day moving average has been gradually rising and may act as a solid support level on any weakness. If DCI can clear the top of this range near $70, it could lead to much higher prices.

Pharmacyclics, Inc. (Nasdaq:PCYC) –Nasdaq is the one stock in this group not near all-time highs, but the same principals apply. Over the past several months, the price action in PCYC is very similar to the stocks above. PCYC cleared the top of its base near $13 in November and rallied to $16 in short order. It quickly reversed a few days later and then reversed again just as quickly. It has settled into a very tight range near $15 and could be close to a breakout attempt. Any sustained strength above this level would likely lead to a trend move higher.

The Bottom Line
With the current market at a crossroads, it makes sense for traders to keep their options open to different trade setups. It is possible that the markets fail from these levels and begin another leg lower. However, the near-term pattern has been slightly positive and the markets have a decent chance to build on recent gains. If the market indexes continue to head higher, then these stocks will likely clear their resistance levels. This would likely offer a great trading opportunity, especially considering these stocks are healthy on longer-term charts. (For more, see Technical Analysis: Introduction.)

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

Charts courtesy of stockcharts.com

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

Related Articles
  1. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  2. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  3. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  4. Technical Indicators

    Understanding Trend Analysis

    Trend analysis is the use of past performance to predict future price movement of a security.
  5. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  6. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  7. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
  8. Chart Advisor

    Strategizing for a Market Fall...or Rally

    The downtrend isn't confirmed yet, so be prepared with trades for whether the stock market rallies or continues to fall. Here's how to do it.
  9. Trading Strategies

    Are You a Trend Trader or a Swing Trader?

    Swing traders and trend traders execute market timing strategies that require different skill sets.
  10. Technical Indicators

    Detrended Price Oscillator Trading Strategies

    The detrended price oscillator (DPO) offers a simple approach to cycle analysis, removing momentum and long-term trends from the equation.
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Mass Index

    A form of technical analysis that looks at the range between ...
  5. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...
  6. On-Balance Volume (OBV)

    A momentum indicator that uses volume flow to predict changes ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  4. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>
  5. How was the Fibonacci retracement developed for use in finance?

    The use of Fibonacci retracements in stock trading was popularized by noted technical analysts W.D. Gann and R.N. Elliott. ... Read Full Answer >>
  6. How was the stochastic oscillator developed?

    The history of the stochastic oscillator is filled with its own controversies and inconsistencies. Most financial resources ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!