Daily Form June 16, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY JUNE 16, 2008       06:55 ET

The action on Friday would have jolted a lot of the bearish breakdown players that were becoming too enthusiastic on the short side. The chart pattern on the S&P 500 (^SPC) certainly reveals the twin surprises from trading so far in June. There was the surge up in the session prior to the most recent employment report and then last week’s drop below key support levels.

My current inclination would be to expect an attempt to break back above 1380 but I would expect this to be accompanied by a lot of whipsaw behavior and the possibility of another bout of coordinated inter-market strategies involving crude, Treasuries and possibly more financial scare mongering thrown in for good measure.


The Nikkei 225 (^N225) produced a 2.7% rally in overnight trading in what was a good session generally for the Asian markets. The Japanese index now has to confront again a major hurdle at the 200 day EMA where it was rejected during trading on June 6th.

The Shanghai Exchange stabilized exactly at the 200 week EMA that I discussed last week.

The doji star formation on the yield for the ten year Treasury sits astride the 4.26% yield. Intraday on Friday the yields moved above 4.3% which is 100 basis points above the closing level seen on March 17th. Further upside yield targets lie in the vicinity of 4.75% and date back to last October but it would not be surprising to see some consolidation at current levels first.

The Russell 2000 (^RUT) faces the 200 day EMA hurdle from below again after dropping below the 50 day EMA last Thursday. The last three day pattern has most of the features of a morning star reversal candlestick but given the likely volatility this week we may well see another reversal off the 740 level.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY JUNE 16, 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.
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LUV  Southwest Airlines Co.  

Friday’s suggestion that Southwest Airlines (LUV) presented an attractive opportunity on the long side delivered a more than five percent profit for what was essentially a one day trade.



LVLT  Level 3 Communications  

Level 3 (LVLT) has an interesting chart pattern in which the early June breakout has now pulled back to a test of the line of possible support/resistance



LMT  Lockheed Martin Corporation  

In Friday’s commentary I included a chart for Lockheed Martin (LMT) but unfortunately the comments were omitted. The point I was making was that there is clear evidence of overhead resistance in this pullback pattern and I would be surprised if the stock did not meet with some renewed selling as it tries to push above $106.



GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) moved up in Friday’s trading although the volume was not overly impressive. The 200 day EMA is a feasible target in coming sessions.



NT  Nortel Networks Corporation (USA)  

Nortel Networks (NT) surged ahead at the end of last week and may still have further upward momentum.



VAR  Varian Medical Systems Inc.  

Varian Medical Systems (VAR) has quite similar dynamics to the chart for Nortel



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