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TheStreet Open House

5 Trades to Take as the Market Returns to Normal

Stocks in this article: RPMSHLDFSLRDDRATO

Sears

It's been a much better year to be a Sears Holdings (SHLD) shareholder. Shares of the department store chain have more than doubled in 2012. But this stock is showing investors nearly the exact same upside setup on a multi-month pullback. So how do you trade it?

Like FSLR, Sears is forming an ascending triangle pattern. It's valuable to think about how this pattern works in real terms. Ater all, patterns like the ascending triangle don't work because of magic or geometry. Instead, it all comes down to supply and demand in the market.

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That resistance level at $62.50 is a price where there's historically been a glut of supply of SHLD shares that has overwhelmed buying pressure. In other words, it a price where sellers were more eager to sell and take gains than buyers were to keep buying. A breakout above $62.50 means that the excess supply has been absorbed by increasingly eager buyers, so it makes sense to jump in and buy.

That breakout happened on Friday, and now we're waiting for confirmation before jumping onboard. It looks like SHLD is going to throw back a bit today. That's fine as long as shares hold out above $62.50. If shares correct a bit, I'd recommend buying on the bounce off of that former resistance level.

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