Work the Longer-Term Trend Now

This column was originally published on RealMoney on July 11 at 1:12 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

This is the toughest market environment in several years, but traders and investors have a powerful tool in the struggle to avoid its vicious claws.

They can take a giant step back and base their positions on broader weekly charts, rather than up-close daily ones.

Today we'll look at six opportunities that take advantage of these longer-term trends.

Weekly chart patterns exhibit lower volatility and higher profit potential than their daily cousins.

The trick is to wait patiently for the best trade entries and then give your positions a lot of room to move around.

This twofold strategy reduces day-to-day market anxiety and improves annual returns.

The sour tone in this summer market is forcing us to look at positions on both sides of the aisle. The good news is the longer-term approach works as well with short sales as it does with long positions.

In fact, it makes sense right now to hedge your exposure with a timely short or related put whenever possible.

Most conservative and retirement funds do not permit short selling. But restricted accounts now can access the short side with four exchange-traded funds introduced just last month.

These unique instruments move opposite to their underlying indices, so buying one should yield the same performance as selling short its polar opposite:

• Short QQQ ProShares(PSQ Quote)
• Short S&P500 ProShares(SH Quote)
• Short MidCap400 ProShares(MYY Quote)
• Short Dow30 ProShares(DOG Quote)

But the major indices don't always offer the best opportunities, so here are six weekly picks to get you started on long-term trading strategies. It's an interesting collection of blue-chip favorites, with a few longs and a few shorts.

Microsoft(MSFT Quote) is releasing its new operating system next year, but does anyone really care? The stock moved sideways for four years before breaking a key trend line in April. Price is now working its way back to the breakdown level above $26, which should offer an excellent short-sale entry for longer-term players. The new downtrend predicts that multiyear support in the high teens will eventually break.

Ford(F Quote) hit a 10-year low of $6.50 in 2003 and bounced sharply. That rally topped out nine months later and the stock resumed its long decline. Price returned to the multiyear low two weeks ago, broke it for a single day and then rallied above it. This reversal yields a weekly 2B buy signal, popularized by noted trader Vic Sperandeo. Keep your stop loss below the June low and then watch for a rally back to the 2004 high of $17.

eBay(EBAY Quote) hung tough while other Net stocks fell apart after the tech bubble burst in 2000. But its long bull run ended in late 2004, and it's been nothing but bad news for the online auction company since. Its recent breakdown below 2005 support at $30, shown clearly on the weekly chart, predicts a persistent decline that eventually will reach into the mid-teens.

Johnson & Johnson(JNJ Quote) rallied through its all-time high of $66 in 2005, nosed above that level for three months and pulled back sharply in a weekly bull flag. The stock broke out of its long decline in May and tested the downtrend line successfully two weeks ago. This predicts the recovery will eventually reach last year's high. In turn, that price action would compete a multiyear cup-and-handle breakout pattern.

Broadcom(BRCM Quote) traded sideways under base resistance of $33 for more than four years, following a sharp bear-market decline. It finally broke above this key level in January, rallied up to $50 and then reversed sharply. The stock fell back through base support in June and triggered a weekly failure signal. That sets the stage for a selloff that could hit the midteens next year.

ExxonMobil(XOM Quote) rallied to an all-time high of $65 in March 2005 during a powerful sector rally. It then dropped into a broad ascending triangle that's persisted into this summer. The stock is now rallying back to pattern resistance for the fourth time and finally could break out. That move should trigger a sustained rally that carries its price up to $100 in the next 12 months.

P.S. from TheStreet.com Editor-in-Chief, Dave Morrow:
It's always been my opinion that it pays to have more -- not fewer -- expert market views and analyses when you're making investing or trading decisions. That's why I recommend you take advantage of our free trial offer to TheStreet.com's RealMoney premium Web site, where you'll get in-depth commentary and money-making strategies from over 50 Wall Street pros, including Jim Cramer. Take my advice -- try it now.

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