The market looks poised to brutalize investors as concerns about the Eurozone continue. Gold and Silver have lost their glitter and are no longer the safer haven investors seem to be fleeing towards. It’s probably a great time to consider figuring out how to benefit from the downward move by making bearish trades. Using inverse ETFs such as ProShares Short Dow30 (DOG) or ProShares Short S&P500 (SH), or even leveraged versions of these such as ProShares UltraShort S&P500 (SDS), ProShares UltraShort Dow30 (DXD), or even ProShares UltraPro Short QQQ (SQQQ) and Direxion Daily Small Cap Bear 3X Shares (TZA)—all of which are designed to rise when the markets fall—might seem like an easy trade to make.
Indeed if you thought that fear over Eurozone debt today and U.S. debt tomorrow would bring about investor flight out of the stock markets, then certainly you would want to look carefully at those ETFs for trading opportunities. As long Instead the U.S. Dollar is rising in value, benefiting from the Euro’s precipitous fall, pressure on all commodity prices including gold and oil, will continue.
But I am hesitant to take the bearish path just yet; in part, because I see one collection of stocks that seems to persist in holding on to gains. Large technology bellwether stocks may outpace the market’s gains if the market rebounds for at least the first quarter of 2012.
Big Technology Rising
Stocks of companies like IBM (IBM), Google (GOOG), Cisco (CSCO), and Verizon (VZ) have dropped over the past few days with the market, but have shown relative strength when doing so—that is to say, when the market dropped, they didn’t drop as far. That generally means something bullish for these companies when the headlines stop their bearish slant--even if momentarily.
Right now, many of them are exhibiting a rising wedge pattern. While this is typically a bearish pattern, the lower lines on this pattern may define a good level of support that could be used as an entry point for the more aggressive trader. For example, consider the setup shown on Google.
Approaching the Apex
In this figure you notice that the black lines show a rising, but contracting pattern. This upward consolidation often leads to a sharp fall in prices—except (and I say this with a smirk) when it doesn’t. The rising wedge pattern doesn’t always break to the bearish side. When it breaks upward, it catches most people by surprise—especially those trading short—and the move can be significantly accelerated by those who reverse their thinking in a hurry.
Within the rising wedge pattern is evidence of a sideways consolidation from a flag pattern. If GOOG closes above the upper line of the wedge pattern, it will essentially have performed a double-breakout. This chart pattern could lead to a rapid rise leading the stock near the $700 price mark. That would be hard to imagine in the current environment, but consider the risk if you are wrong. If you are able to establish a position near the current support line (between 623 and 618), you can stop out of the trade as quickly as 612. That’s a small risk compared to the upside potential. With the apex of the consolidating lines pointing to the end of the year, it is certain you won’t have to wait around long to find out whether this trade will work or not. But if the lower trend line holds through the holidays, there’s a good chance that 2012 could start well for Google.
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