Shares of Bruker BioSciences ( BRKR) fell off a cliff in early May, and the bears still have the upper hand. A look at the X-ray maker's technical picture shows a possible short-trade setting up.

The stock displayed strong price appreciation from February to April of this year. However, after Bruker met first-quarter targets, shares succumbed to a Bear Stearns' analyst report that the stock was overvalued.

Since that time, it appears that buyers have become more cautious. A capitulation phase like Bruker experienced in early May usually leads to a strong reversal that pushes the price back up to the point where shares were trading before the selling exhaustion.

In this case, this level equates to about $11.50. Instead, short-covering and reversal traders could only push the price back up to $9.40 before Bruker shares began forming a double bottom. The retest of the $8 support in late May shows that buyers are still willing to purchase weakness, but not strength.

It will take some time for the stock to build a base between $8 and $9.50, if the bulls in this life sciences company are to regain control of the daily chart.

Right now the stock's near-term support level at $8 is in danger of failing, which could lead to a further decline to the former $7 support. In order for the bulls to regain control of the daily chart, they will need to push the price back above $9.40 on a closing basis.

A close above $9.40 would likely cause the bears to cover their positions, and invalidate the developing short setup. But given the lower-volume reversal that occurred in May when the stock bounced off $8 and moved back up to $9, Bruker appears to have a higher probability of at least testing $8 again before climbing above $9.40 on a closing basis.

And if the bears prevail, shares could break even lower.


Bruker BioSciences (BRKR) -- Daily


The ideal setup for this stock would be to see the trading range continue to form between $8 and $9.40. Then if Bruker's share price breaks the $8 support, the short entry should be taken at $8 on a return to that price level.

At that point the stop would be placed at $9. The profit target would be placed at the $7 support that formed in January and February.

If the price breaks $9.40 before offering an entry, this trade setup is no longer valid. Shares closed at $8.84 Monday.

Updates on Previous Picks

Beacon Roofing Supply ( BECN) did not set up last week. The short setup is for the price to hit $18.50 for the entry, with a stop at $20.10. The first profit would be $16.90, and the final profit target is at $12.75.

If the share price closes under $15 without first offering an entry, this trade setup is no longer valid. Shares closed at $18.08 Monday.

PRG-Schultz ( PRGX) moved above the invalidation level of $16.50 last week, so this trade setup is no longer on the Watch List.

At the time of publication, Schumacher had no positions in stocks mentioned, although holdings can change at any time.

Chris Schumacher is a financial trader, speaker, writer and co-author of Techniques of Tape Reading. While Schumacher cannot offer specific investment or trading advice, he appreciates your feedback; click here to send him an email.

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