Break Up or Break Down? Four Stocks At Critical Levels

As the S&P 500 makes new highs, these stocks are lagging behind and hesitating near former highs. If these four stocks can break beyond their former highs it will keep the uptrends alive. Failure to reach new highs though will create large topping patterns which will ultimately lead to much lower prices.

Time Warner Cable (NYSE:TWC) has been struggling to get above the $143 area since March. A break above that threshold on June 6 could be enough to push the stock toward the high at $147.28. The long-term trend is up, but for that to continue, the stock needs to exceed that high watermark. If the price can't break and hold above $147.28, watch for a retest of $134. Given the long-term trend, the $134 region presents a buying opportunity as strong support is present. On the other hand, if the price continues to decline below $132.58 (April low) a top is in place, and at least a short-term downtrend will be underway. 

United Postal Service (NYSE:UPS) made its last high on December 31, before losing 10% of its value in January. Since February the stock has been climbing back toward the high at $105.37. The strong short-term trend could push the price above the level, continuing the long-term uptrend. Given the sizable correction in January, which was much stronger and quicker than the rally since February, its questionable whether the stock can reach and stay above $105. Buying at this point is a gamble because resistance in the $105 region could force the stock back toward trendline support at $98. The $98 area provides a better entry for the bulls, as it will be along a newly created triangle pattern; risk can be kept quite small with a stop below $96. An upside breakout targets $115, while a break below $96 could push the price to support at $88.

Verizon (NYSE:VZ) has been creeping back up to the October high at $51.49. Despite the breakout of a triangle near the $50 area, the price is still likely to meet resistance near $51.50. If exceeded, expect a test of the April high at $54.31. The triangle is about $8 in height, which, added to the breakout price, gives a target near $57 over the long-term. An inability to climb back above the June high at $50.33 means the triangle stays in place and signals a move back toward the $46 support area. Bulls can go long with a stop below $48, while bears can go short with an initial stop above $51.50.

Walmart (NYSE:WMT) has been moving predominantly sideways since mid-2013. Since February the trend has been up, but $81 is a key resistance area which could halt the rise. The sharp decline off $80 also makes it a likely resistance area. While the price has room to run toward these areas, being long at the top of this large range is risky. It will take very significant volume and momentum to push the price up and out of this range, and currently the signs aren't there (but they can develop quickly). Waiting for a deeper pullback toward $73 or $72 provides a better buy point, as there is well established support down to $71. The current price isn't particularly attractive for short positions either; $80 to $81 provides a better short entry, especially if the price tries to move above these areas but quickly fails. 

The Bottom Line

Significant highs overhead put these stocks in a precarious position. By not being at new highs, they are already showing signs of relative weakness compared to the broader market (S&P 500) as of late, and deep corrections off the prior high show there is strong resistance in the area of those former highs. Long-term trends remain up, but if bullish on these stocks, waiting for a pullback and a lower risk trade is more prudent than buying at current levels. Bears can look for shorting opportunities if these stocks fail to make new highs or break higher but the breakout quickly fails, which indicates downside to come.