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