Daily Form April 14, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY APRIL 14, 2008       05:40 ET

After spending several sessions after the April 1st surge biding their time in a holding pattern, the short side were energized to move off the sidelines by the troubling numbers from GE. Looking at the daily chart for the S&P 500 (^SPC) the break down below both the 20 and 50 day EMA’s that took place at the end of last week may well have motivated the bears to limber up for a re-test of the March low.

There are however some divergences that I comment on below which could be suggesting that, despite the almost relentlessly gloomy economic news, there are many asset managers that are cautiously looking to add to portfolios on the long side.

The S&P 400 Midcap (^MID) tells a rather different story to its more widely followed sibling. The index came to rest on Friday above the convergence of two key moving averages and still in contention with the 800 level. The nteresting divergence between the larger caps and the midcaps in one indicator that I shall be monitoring this week to gauge the potential for follow through on the downside.

Germany’s DAX index (^GDAXI) reveals an elongated triangular pattern that dates back to mid-January. The 6800 level has proved to be a significant overhead hurdle and I shall be watching this week to see whether the 6400 level can provide sustainable support. As with all extended triangles this pattern is calling out for some form of resolution in the not too distant future.

Despite Friday’s sell-off the CBOE Volatility Index (^VIX) is still behaving in a far more sedate manner than it did during the January and March "crises". The 200 day EMA has acted as an attractor since early April for the market’s estimation of implied volatility and the two channels indicated show that a lot of the fear and expectation of turbulence that was being expressed in January and mid March has dissipated.


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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REDF  Rediff.com India Ltd.  

Rediff.com (REDF), the Indian online content provider, managed to move ahead by more than five percent on triple its average daily volume and a continuation is to be expected in future sessions.

MRK  Merck and Co. Inc.  

Merck (MRK) looks good on the short side as it comes nearer towards the $45 level.

AMLN  Amylin Pharmaceuticals  

I would be looking at a move upwards by Amylin Pharmaceuticals (AMLN) towards the 200 day EMA.

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