A trick or two from the technical vault…

While I certainly appreciate a good fundamental overview of a particular stock to support a bullish or bearish argument, one cannot gain a greater understanding of timing mechanisms without honing in on the technicals of a stock.

In the chart of Schlumberger (SLB:NYSE) below, you can see two key technical setups, the first being the basic trendline. See how shares snuggled close to the line. Once the stock bounced off two consecutive uptrend points, we can then plot its trendline. In October, the trendline was broken and you could have immediately taken profits and flipped strategies to include short or put options for hefty gains.

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The second technical pattern on this chart is referred to as a symmetrical triangle. It is a common characteristic of a stock that needs a break, or period of rest, before proceeding further. In most cases, you’ll find that the breakout from the triangle continues in the direction prior to the pattern itself. In this example, the trend prior to consolidation was down. Hence, the reason for my bearish outlook on Schlumberger stock.

Tip: Never play the pattern itself – wait for confirmation of a move outside the setup