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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.

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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.