10 bullish trendsetters to watch

Remember, when it comes to technical analysis, numbers can't lie.

By InvestorPlace Jul 18, 2012 1:23PM
mage: Bull figurine on ascending line graph and list of share prices (© Adam Gault/OJO Images/Getty Images)By Chris Johnson

This market has become extremely sensitive to the charts, given that the fundamental picture has become just too hazy and confusing.

As we've pointed out in the past, when the market can't see through the "fundamental fog," traders shift to a "fly by instrument" approach, where the technical patterns become the key gauge on their panel.

Remember: Numbers -- the basis for technical analysis -- can't lie.

With that in mind, tracking the changes in technical patterns can be the first line of offense in determining where the technical nomads will migrate next. That can allow you to beat the crowd to the next new bullish trends. One filter we use to track these technical trendsetters looks for stocks with 20-day moving averages crossing above their 50-day, or a "bullish crossover."

The idea is simple: When a shorter moving average crosses above a longer moving average, it often signals that the short-term trend has reversed and is now moving higher. Our filter also monitors each stock's daily volume for signs of an increase in buying interest as the stocks make these bullish crossovers.

As of this week, 54 companies were completing 20-day/50-day bullish crossovers, the top 10 are identified in the table below. Of notable interest to me is the fact that three of these companies are representatives of the SPDR KBW Regional Banking ETF (KRE), an exchange-traded fund that we believe is poised to outperform the market over the intermediate term (we'll go into that more in another commentary soon).

Let's take a closer look at three of these:

American Express (AXP): Despite the slowdown in the retail sector, consumer credit card companies continue to push through to new highs lately. AXP is a great example of a market outperformer as the shares are up more than 24% year-to-date. The stock just bounced from its 50-day moving average and is pressing higher toward its May highs near $62.

The kicker that attracts us to this name is the negative sentiment picture. Current analyst rankings on AXP show only 50% with "buy" recommendations, even though the shares have left the market in its dust. We like underloved outperformers like this because the market will warm up to them and attract even more buying.

Kraft Foods (KFT): Dividend-yielders are on Wall Street's radar as lots of investors continue to scramble for alternative income sources. KFY currently yields nearly 3%, on a stock that's up about the same as the S&P 500. That's an attractive alternative for many. KFT shares just completed a bullish crossover as it moves to prices not seen since 2002. Look for these shares to trade back toward their 2002 highs of around $44 soon.

Windstream (WIN) is a technology company that focuses on managed services and cloud computing for businesses nationwide, especially in rural markets. The communications sector has been on fire lately, led by telecom giants like AT&T (T) and Verizon (VZ).

Windstream's bullish crossover is enhanced by the relatively pessimistic sentiment picture overshadowing the stock. Currently, only 32% of the analyst recommendations are in the buy camp. The stock has lagged the market through 2012, losing 16% compared to the S&P 500's gain of nearly 8%. This single-digit stock may be ready to make its move higher as its trend improves and attracts technical buyers.

As of this writing, Chris Johnson is long KRE but does not hold any other other securities mentioned.

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Jul 18, 2012 1:52PM
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