Today’s Big Stock: Stryker Corporation Common Stoc (NYSE: SYK)

Stryker Corporation (Stryker) is a medical technology company. Stryker provides orthopedic implants, as well as medical and surgical equipment. It has two segments: Orthopedic Implants and MedSurg Equipment. Its products include implants used in joint replacement, trauma and spinal surgeries; surgical equipment and surgical navigation systems; endoscopic and communications systems; patient handling and emergency medical equipment, as well as other medical device products used in a variety of medical specialties.

To review Stryker’s stock, please take a look at the 1-year chart of SYK (Stryker Corporation) below with my added notations:

After breaking a key level of $57.50 (navy) in July, SYK fell into a consolidation pattern known as a Rectangle, albeit a rough example of one. This type of pattern forms when a stock gets stuck bouncing between a horizontal support and resistance. A minimum of (2) successful tests of the support and (2) successful tests of the resistance will give you the pattern. The nice thing about a Rectangle pattern is that it will provide you with clearly defined breakout and breakdown points. For SYK, the Rectangle pattern has formed a $50 resistance (red) and a $45 support (blue). The stock will have to break through one of those levels eventually.

Chart patterns can also provide price targets. Simply take the height of the overall pattern and add or subtract that amount to or from the breakout or breakdown point to get the minimum price objective. For example, since the Rectangle pattern for SYK is $5 high ($50 – $45), SYK should climb to a minimum of $55 ($50 + $5) if the stock breaks above $50 or fall to $40 ($45 – $5) if the stock breaks below the $45 level. Chart pattern price targets are certainly not guarantees, but they are often fulfilled.

The Tale of the Tape: SYK has formed a very common chart pattern know as a Rectangle. This pattern shows clear breakout and breakdown points for a potential long or short position. For SYK, a trader could enter a long position at the $45 support or a short position on a rise to $50. However, with Rectangles, a lot of traders like to wait for the break up or down to enter the trade. So, a long trade could be made if SYK were to break above $50 or a short position if the stock breaks below $45.

Before making any trading decision, decide which side of the trade you believe gives you the highest probability of success. Do you prefer the short side of the market, long side, or do you want to be in the market at all? If you haven’t thought about it, review the overall indices themselves. For example, take a look at the S&P 500. Is it trending higher or lower? Has it recently broken through a key resistance or support level? Making these decisions ahead of time will help you decide which side of the trade you believe gives you the best opportunities.

No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.  Capital preservation is always key!

Good luck!
Christian Tharp, CMT