Daily Form March 31, 2008

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY MARCH 31, 2008       06:38 ET

One of the most notable features of last week’a action as a whole, and in particular the latter part which coincided with the pullback, was the subdued volume. I remarked last week that the S&P 500 (^SPC) has not, as yet, put in a determined run to break free from the descending trend line through the highs since last October, but on the other hand, there appears to be a lack of conviction amongst the bears about re-testing key support levels.

Cross currents continue to dominate and the market is thrashing around in search of a direction and yet, stepping back from the day to day gyrations, we are basically confined within a relatively narrow range. As marked on the chart the trading channel which has been in place for most of the first quarter essentially lies within one hundred points between 1280 and 1380.

I maintain a relatively bullish stance and believe that a realizable target within the next few weeks is 1415-1420 which marks the 200-day EMA and also the 50% retracement level from the October 2007 high and the January and March lows. Although I attach less probability to the alternative outcome, it is still worth reiterating that there remains a viable possibility that we could break down from the descending wedge pattern that we are still confined by. The key support level is 1260 and things would get ugly if we drop below this.




The chart for the Dow Jones Transportation Index (^DJT) diverged significantly from other broad indices during the Mid March weakness. The chart formation shows that the March lows were considerably above the January lows and an ascending wedge pattern is developing which is often a precursor to an upside breakout. Further retracements would encounter layers of support initially at the 200 day EMA which is just below Friday’s close. For an overall bullish perspective on the market to become more compelling one would want to see another move up towards a challenge of the 5000 level in coming sessions.

I shall also be watching the sector fund, XME, which is designed to track the total return performance of the S&P Metals & Mining Select Industry Index. The technical characteristics suggest that the sector is undergoing distribution and there has been a succession of lower highs in recent weeks.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY MARCH 31, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

BVN  Compania de Minas Buenaventura SA  

I was early in my comments in late February that BVN had some typical topping characteristics but following the plunge that took place on March 19th the mining stock has pulled back to a level where there may be further selling ahead.



FCX  Freeport-McMoRan Copper and Gold Inc.  

Freeport McMorran (FCX), one of the world’s largest copper mining companies also looks as though the pullback may be close to having run its course in the near term.



PMCS  PMC-Sierra Inc.  

I shall be watching PMC Sierra (PMCS) during the course of the week for an entry opportunity on the long side as the pullback extends down towards the 50 and 200 day EMA’s.



ROST  Ross Stores Inc  

Ross Stores (ROST) has a favorable looking pattern on the long side.



ERIC  LM Ericsson (ADR)  

In the telecom sector, the two Scandinavian competitors Ericsson (ERIC) and Nokia (NOK) also appear vulnerable after pulling back from the very weak sessions that both experienced on March 19.

No comments: