According to Finviz, over the last week and month the conglomerate sector has been the leader. The sector as a whole is up 10% in the last three months. Stocks such as United Technologies (NYSE:UTX) and 3M (NYSE:MMM) have ramped up more than 20% gains since the summer, and Caterpillar (NYSE:CAT) and Leucadia National (NYSE:LUK) have seen similar gains since November. With these heavily traded stocks (all trades well over a million in daily average volume) already posting solid gains, is now the time to buy?

The uptrend within United Technologies has been looking very strong since setting an intermediate low in November at $74.44. The near vertical rally since June has broken a long-term triangle pattern, which started back in August 2011. Ultimately the breakout indicates a continued long-term rise in the stock; the target is $99 to $106. The wide range is given because $100 is such an important psychological level - if the stock lacks momentum as it approaches, it isn't likely to get through. But if it moves through $100, another several dollars of movement higher is probable. While the target provides for further upside, triangle breakouts often retest their breakout point. Therefore, I would look to pick up the stock in the $84 to $80 range, with a stop just below $74. That provides for about $20 in upside for $6 to $8 risk. If you already own it, I like the looks of it, but would tack the same $74 stop on it.

SEE: The Anatomy Of Trading Breakouts

UTX triangle

3M is rapidly approaching the $100 mark, and has a strong momentum going in. In the spring and summer of 2011, the stock made attempts at the mark but faltered near $98 - a level easily surpassed this time round. My main problem is that I don't see a technical catalyst to really keep driving the stock higher. While passing through $100 could spark some additional short-term buying interest into $105, I don't seem much of an upside beyond that. While I may end up eating my words, because currently the stock is quite hot, at current levels near $99 the reward to risk just doesn't seem to be there right now.

MMM breakout

Caterpillar is in an interesting spot technically. In mid-November the stock traded down to near $80. As of the January 22 close it was at $97.72 - a solid three-month performance. Zooming out, over the last two years the stock has been moving in large swings, and while it's not quite a range, it has been range like. The current price is right in the middle of that "range" and there isn't likely to be much resistance until the stock nears $110. That said, the aggressive move higher since November makes stop placement tricky. January started with a gap higher, and that should provide some support. Therefore, picking Caterpillar up at near $97 with a stop near $92 allows for a moderate risk/reward ratio. Over the last two years there has been a bullish bias, which means it is quite possible the stock tests the 52-week high at $116.95, and potentially beyond. It is too early to predict that, but even with a $110 price target there is a tradable move given the right entry and stop level.

SEE: Interpreting Support And Resistance Zones

CAT swing

Over the last two years Leucadia National has been beaten down - dropping from $39.14 in April 2011 to near $20 multiple times since. The $19.58 low in June 2012 looks like it may be a turning point for the stock though. A choppy rise into the $24 region gives bulls some technical hope. If the stock rises above $25, I like it. Waiting for the move above $25 shows the stock has some upward momentum, and a stop can still be placed relatively close at $23. The upside is the question here though. With the main trend down, there are loads of resistances everywhere. If the stock breaks $25, a target of $27 is a solid initial target. Between $27 and $30, there are significant price peaks from 2011 and 2012. If the price climbs through this area, it is a good sign long term that the trend has turned. Given the longer term downtrend, if the stock doesn't break $25 and then drops below $23, there is a definite short trade possibility there.

SEE: Support & Resistance Basics

LUK range

The Bottom Line
Conglomerate stocks are performing very well overall, but how they will perform in the future is the primary concern. As with any trade, there has to be a reasonable potential profit to warrant the risk of a trade. While I like investing in the strongest sector, not all stocks in this (or any) sector are on equal footing. It's better to be patient and wait for a trade setup that fits your risk tolerance, even when a stock is strong.

Charts courtesy of

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

Related Articles
  1. Charts & Patterns

    How To Use Volume To Improve Your Trading

    The basic guidelines to analyzing volume may not apply in all situations, but overall, they can help direct entry and exit decisions.
  2. Trading Strategies

    4 Common Active Trading Strategies

    Active trading entails buying and selling securities with the intent of profiting from short-term price movements.
  3. Chart Advisor

    3 Charts That Suggest Now Is The Time To Invest In Real Estate (VNQ, SPG,PSA)

    Real estate assets have some of the strongest uptrends around. We'll take a look at three candidates poised for a move higher.
  4. Chart Advisor

    Stocks With More Upside Due to Bear Traps (TAP, SPY)

    A bear trap is a pattern that typically leads to at least a short-term rise in prices. Here are stocks exhibiting the pattern.
  5. Term

    Swing Trading Risks and Rewards

    Swing trading is the attempt to capture gains in a stock within one to four days.
  6. Active Trading Fundamentals

    New Traders: Trade the Market in 5 Steps

    New traders shouldn’t throw money at securities without knowing why prices move. Follow these five steps to tilt the odds in your favor.
  7. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  8. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
  9. Stock Analysis

    Will "FANG" Stocks Outperform in 2016?

    Facebook held the most bullish accumulation-distribution pattern into year’s end, telling investors to focus on this issue in 2016.
  10. Chart Advisor

    Stocks At Buy Points In Healthy Uptrends

    These stocks are in healthy long-term uptrends, and a recent pullback presents a buying opportunity.
  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