Banco Bradesco

Despite trailing Mr. Market by a couple of points so far in 2012, Brazilian banking stock Banco Bradesco ( BBD) is looking more bullish-biased right now. That's thanks to an inverse head and shoulder setup that's currently forming in shares.

An inverse head-and-shoulders setup is a pattern that indicates exhaustion among sellers. This pattern has been forming since the middle of July, when shares started forming their left shoulder. More recently, this stock has been consolidating sideways, holding off on the breakout above BBD's neckline level that would constitute a buy signal in shares. Even so, the neckline is still the price level to watch for a breakout in BBD.

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Even though the head-and-shoulders (and its inverse) is likely the most well known technical pattern, it's still a valuable one: an 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."

When the breakout does happen, I'd recommend keeping a protective stop just underneath the 200-day moving average. To see these plays in action, check out the Technical Setups for the Week portfolio at Stockpickr.

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