Caution vs. Opportunity

This stock market is like the Louis CK observation that everything is amazing and no one is happy. The S&P 500 is making new all-time highs, up 6% this month, yet traders are not happy when price does not follow the expected pattern of incremental higher highs and higher lows, or it does not pull back and consolidate at resistance. Caution can cost you, however, and it needs to be weighed against opportunity. One way for cautious traders to participate in a market that does not live by their rules is to use weekly charts. They require smaller position sizes to allow for wider stops, but offer exposure to the market and a cushion should it revert to more traditional behavior.

The weekly chart of Campbell Soup (CPB) shows the stock in sideways consolidation for the last six months. The price action resembles a head-and-shoulders continuation pattern with the head making a 50% retracement of the 2011 low and the 2013 high and the shoulders finding support near the 38% retracement level. Last week the $43 neckline was broken, and with price and money flow momentum indicators moving higher, the stock is a buy at its current level. Position size should accommodate a stop under the right shoulder, and the pattern projects a target price to the 2013 high....136 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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