Daily Form December 10, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY DECEMBER 10, 2007       07:22 ET

The S&P 500 (^SPC) is now about to take on key levels between 1520 and 1530 which coincide with an area of previous price congestion and also the descending trend line that has prevailed since the most recent high from October 9th. Today will provide a good reading from the markets as to whether the additional $10 billion write-down announced by UBS still has the capacity to shock and cause another bout of weakness in the financials.

If the S&P 500 can break decisively above 1525 on a closing basis then I suspect we could see new historic highs on the index before the end of the year.

Chart patterns are somewhat confusing at present as a result of the major short squeeze that has been under way since the Thanksgiving break. Many stocks are now poised at areas of moving average resistance and the volume levels in many of last week’s sessions were subdued, nevertheless one has to give the benefit of the doubt to the bulls at present.

Friday’s employment data brought a change in sentiment for Treasury traders that were becoming too complacent in their view that the economy was going into a nosedive. Over the previous two sessions yields have leapt back above the 4% level, with twelve basis points being added in Friday’s session alone, and my suspicion is that we could see a further move towards the previous floor/ceiling on yields at the 4.4% level before too long.


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions. None of these setups should be seen as specifically opportune for the current trading session.
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DKS  Dick"s Sporting Goods Inc.  

The pattern for Dick’s Sporting Goods (DKS) in the retail sector reveals an ascending wedge pattern with the upper hurdle that needs to be crossed positioned at the $32 level which is where the stock concluded last week. The pattern looks constructive on the long side and there could be an attempt to push back above $34 in coming sessions.

MBT  Mobile TeleSystems OJSC (ADR)  

On the short side the daily chart for Mobile Telesystems (MBT) is showing evidence of negative momentum (MACD) divergences as well as some evidence of distribution despite the recent higher prices. This kind of dissonance can often precede a tradable correction.

USG  USG Corporation  

The homebuilders enjoyed a bounce but the sector fund (XHB) has now come into contact with descending trendline resistance. More constructive from a long perspective is the chart for one of the major players in the building materials sector. USG moved up on three times its average daily volume in Friday’s trading and pierced through the trendline resistance. The $40 price level would seem to be a feasible target in coming sessions.

MMM  3M Company  

The chart for 3M (MMM) has a similar wedge pattern to DKS and the stock also managed to move above all three moving averages in last Friday’s trading.

Volume was not as strong as I would have liked to see and the stock now faces the challenge of regaining the ground that was lost when the stock plummeted in mid October. Nevertheless the action at the end of last week looks as though this stock should continue to move higher.

VRSN  VeriSign Inc.  

The chart for Verisign (VRSN) displays two rather striking shooting star candlesticks above the $40 level from a week ago. There is also a pullback pattern on very subdued volume which has brought the stock back just below $40 and I would favor a short position with an entry close to Friday’s close.

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