Scott: For the past few months the market has done a great job absorbing some pretty bearish headlines:
Sovereign Debt Headlines out of Europe.
Soft Economic #'s from housing.
Disappointing Jobs Data.
Even though we are few years from the start of the economic crisis in 2008, some structural problems remain. We see that in our own debt crisis as well as the political circus in Washington. As the Chief Strategic Officer/Trader/Partner, I try and monitor the action of the markets and the key stocks, with an ear open to the headlines. Ultimately the stock action tells the story.
Looking ahead, I see a head and shoulders top pattern in the making. This pattern has shown it's face a few times during this 100% move of those March 2008 lows and failed to trigger. When it did, it was a fake out move and turned out to be a better long than a short.
Last Summer we had a similar situation as the market toyed with the 1040-1060 area. Ultimately that level held and the markets went on to make new highs. This time we have some bigger problems with a similar pattern. This could be the right shoulder of the pattern. It doesn't appear perfect, but I never am. I am more of a "cocktail napkin" technician. I do not use the "exact" formation formulas.
**The important areas in my opinion for support is the 200-day at 1280-1285 area. The next neckline seems to be 1250-1260 zone. The pivot low area is from June 13 to June 27.6/13-6/27. A close below this level triggers the pattern and under that is 1220. But the real measured move of the pattern from the head to the neckline is around 80 handles which gives us a move down to 1180.
We will need more time and data and have to measure the action of key stocks along the way. I flattened out my macro positions this week and will cash flow trade until I see more clarity and the new set up. There will be action both long and short as we hit levels of importance.
Keep a level head and trade with a set of prudent rules. Time periods like this can be the most profitable times for those that embrace volatility and think fast.
If you liked this content brought to you by Options Profits and want to explore more of the product, please CLICK HERE for a 14-Day Free Trial.
John is a Commodity Trading Advisor with Razor Trading. McGraw Hill commissioned him to write a book entitled Mastering the Trade, which was released in January 2006. Carter has also been featured on ABC Money. He and Hubert Senters founded and run the Trade the Markets web site.
Tag Team: Market Indicators
Check Out Our Best Services for Investors
Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts
David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
Every recommendation goes through 3 layers of intense scrutinyquantitative, fundamental and technical analysisto maximize profit potential and minimize risk.
More than 30 investing pros with skin in the game give you actionable insight and investment ideas.