Is the bear market over?
Wells Fargo analyst Chris Harvey made that call earlier this week. According to Harvey, rising prices and falling yields in investment-grade corporate bonds are signaling higher stock prices down the road.
Greg Bassuk of AXS Investments seem to agree with Harvey. "We're seeing all of these historical major drivers of the market starting to all point in a direction...supportive of equity market gains over the next few months," Bassuk said, according to CNBC.
Ed Yardeni of Yardeni Research is also on the bull bandwagon. "The rally since Oct. 12 is the real McCoy, the start of a new bull market instead of just a rally within a bear market," said Yardeni.
If the bear is behind us, where should investors turn next? It might be helpful to analyze stocks that are leading the way higher right now. One way to find new market leaders is to scan the list of stocks trading at 52-week highs, and then analyze the charts of those stocks.
This exercise led me to Eaton Corp. (ETN) , a power management company based in Dublin, Ireland and Cleveland, Ohio. Shares of Eaton have gained 11.05% year to date. Eaton is a beneficiary of government infrastructure programs, both in the U.S. and abroad.
What does the future hold for Eaton? Let's go to the charts to find out, starting with the daily chart.
Eaton has formed a huge ascending triangle pattern (dotted lines). This bullish pattern suggests the stock could trade well above $200 per share.
The stock's recent rally has been accompanied by a surge in volume (shaded yellow). This is an indication that institutions are accumulating Eaton.
This stock is trading well above its 50-day (blue) and 200-day (red) moving averages, has strong upside momentum, and is on the verge of a breakout.
Chart Source: TradeStation
For a big-picture view of Eaton's chart, let's zoom out to the weekly time frame. From this perspective, Eaton appears ready to break out of a huge inverted head-and-shoulders pattern (curved black lines).
Chart Source: TradeStation
This bullish pattern formed over an 18-month period, and suggests shares of Eaton could soon reach $225.
Why is Eaton on a bullish trajectory? According to the company's recent earnings report, Eaton exceeded analysts' expectations, earning $7.57 per share (non-GAAP) vs. a projected $7.50. Looking forward, Eaton's operating margins are expected to climb to 20.9% in 2023, up from last year's 20.2%.
Eaton stands to benefit from government infrastructure programs passed in the U.S., the European Union, and elsewhere. I'm taking an initial position today and will add to it if the stock breaks out to a new all-time high.
