Daily Form January 2, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JANUARY 2, 2008       07:25 ET

The last trading day of 2007 saw another downbeat session which brought the S&P 500 to a close just below all three key moving averages. The trading range persists and a directional breakout, which is now becoming overdue, may appear later this week with the release of employment data for December.

The TradeWithForm.com pattern recognition based Long/Short trading system concluded 2007 with a 20.5% return and a Sharpe Ratio value of more than three. This contrasts with a 3.5% return for buying and holding the S&P 500 throughout the year(excluding dividends) and, as if to highlight the difficulties for long only investment strategies, this S&P 500 buy and hold strategy would have endured a disappointingly low 0.4% Sharpe ratio reflecting the erratic trading conditions of 2007.

The FTSE index in the UK closed out the year at 6457 in a shortened trading session on Monday. Putting modesty aside I wanted to cast back to early December when I was a guest analyst on CNBC’s European Closing Bell and cited this exact figure as being a highly significant chart level. For readers of the Daily Form commentary on December 5th this is what I said.

"One of the more interesting indices at present and one that I shall focus on in my guest analyst slot today on CNBC’s European Closing Bell is the UK’s FTSE 100. The chart level that I have drawn represents the 6457 level which, as is apparent passes through several recent intraday highs where resistance has been encountered. This level sits exactly at the 62% retracement of the swing high in October and the swing low in late November. Penetrating above this level will be a real test for the bulls."

One other chart that shows a remarkably symmetrical close for the year that has just passed is for the Hang Seng index (^HSI) in Hong Kong.


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

ADBE  Adobe Systems Incorporated  

Adobe Systems (ADBE) has a bearish flag formation


THQI has pulled back towards probable support at the 200 day EMA.

CHKP  Check Point Software Technologies Ltd.  

The daily chart for Checkpoint (CHKP) reveals a positive MACD divergence in association with the late December price weakness and evidence of a bullish pullback pattern.