The last trading setup we'll look at today comes from the chart of Stryker (SYK), a $20 billion medical equipment maker. Stryker is currently forming one of the most well known trading setups out there: an inverse head and shoulders pattern.
While the inverse head and shoulders typically comes at the bottom of a downtrend (SYK isn't in a downtrend), this setup is a good example of the idea that the actual supply and demand forces causing the pattern are more important than the picture on the chart. For Stryker, the buy signal comes on a push above the neckline at $55. Since SYK has flirted with that level for most of 2012, I'd recommend waiting for confirmation in the form of a close above $55 followed by a consecutive open above that level.
Lest you think that the head and shoulders is too well-known to be worth trading, the research suggests otherwise: a recent academic study conducted by the Federal Reserve Board of New York found that the results of 10,000 computer-simulated head-and-shoulders trades resulted in "profits [that] would have been both statistically and economically significant." Neutral RSI gives this stock plenty of room to run without getting overextended.To see this week's trades in action, check out the Technical Setups for the Week portfolio on Stockpickr. -- Written by Jonas Elmerraji in Baltimore.
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