Patience

The markets have just been
beat up and battered this week and as intermediate term traders, you
should still be on the sidelines selecting stocks for
your
watch list. It could take almost 6-9 months before the markets become
conducive to this strategy
,
so

continue to be patient. 

I would just like to provide
you with a brief explanation on one of the patterns I look for when I
am trading both on a swing trade and intermediate term trade. The
pattern is the symmetrical triangle. This pattern one which I look for
especially with stocks that are near key highs (i.e..
.52
week highs), the reason why? It is an abundant pattern and it offers
some nice explosive moves in the direction of the trend.   

The symmetrical triangle can
be classified as a “volatility breakout” pattern, because of
the explosive move it can produce in price movement. Volatility is
mean
-reverting,
which means volatility can rise and fall to extremes, but will
eventually go back to its norm. With the symmetrical triangle you will
notice that

when

the price range of a stock begins to decrease, this indicates that
volatility is drying up and that a move is imminent.

Lets look at an example of
how explosive this pattern can be. Look at the chart of Elcom (ELCO).
Notice the price range drying up before price explodes out. 

I have found that by
combining this pattern with sound fundamentals, it can

be
a beneficial pattern to add to your arsenal. 

Chantel Pharmaceuticals (CNTL)
has formed a multi-week symmetrical triangle.

 

On a weekly chart, Intuitive
Surgical Inc. (ISRG)
moved up its right side of its base and appears to be constructing a
handle. The medical instrument company is showing quarter over quarter
sales growth of 53.22%, 36.13% and 13.08%. Comparing sales on quarter
verses same quarter one year ago, 41%,140%
,
226%
and 313% respectively.

Note how ISRG traded below
the .6180 retracement level and came back to trade above the .3820
level. Ideally, I would like to see it find support at this level
which, is actually just above a multi week trading range. I am no
expert in Fibonacci levels, but find them useful.

If you want to learn more on
how to incorporate these key levels into your trading, check out the
lesson by Loren Fleckenstein and Carolyn Boroden titled Fibonacci
For The Intermediate-Term Trader

Exchange Traded Funds which
gained in the session were the Utilities Holdrs (UTH)
which closed up fractionally 0.7%, as did its counter part IShares DJ
U.S. Utilities Sector (IDU)
which gained 0.6%.

The IShares DJ. U.S. Energy
Sector (IYE)
also edged up 0.2%

Lower for the session was
the Semiconductor Holdrs (SMH)
which lost 7.7%.

The Internet Architecture
Holdrs (IAH)
did not fare well in trading as the fund lost 7.2% as did the IShares
Technology Sector (IYW)
which fell 6.0%.

The IShares Real Estate (IYR)
have pulled back off the major trend. The fund has been outperforming
the majority of the sectors funds thus far.

Remember that all securities
are risky. In any new trade, reduce your risk by adjusting position
size and placing open protective stops
where you will sell your
new buy or cover your short in case the market turns against you. For
an introduction to combining price stops with position sizing, see
Loren’s lesson, Risky Business.

Have a great weekend!

Greg

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