Daily Form January 22, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JANUARY 22, 2008       06:29 ET

Traders around the globe (even many who would normally be asleep in the Far East) will be transfixed today as they watch the likely gyrations of the US equity indices. Since the U.S. markets closed on Friday the rest of the world has suffered two of the most traumatic trading days in recent memory. I shall focus on the remarkable chart patterns of several of the global indices below but initially let’s review the S&P 500 (^SPC) as of Friday’s close and where we may be headed during today’s trading.

Futures indicate a much lower opening and, from a weekly perspective the 1240 level which has been marked on the chart could be a target for early testing in today’s session. There is a lot of price activity within the 1240-80 region on the daily charts and I would be surprised to see us slice through all of that without some attempts to stabilize for at least a couple of sessions. Chairman Bernanke may ride to the rescue and that prospect will keep the bears on their toes. It has been a great time to be bearish and some hedge funds that are playing the global equity derivatives on the short side are reaping vast rewards. When the short covering begins we could see a mammoth rally. But where it will begin and how enduring it will be is now the new enigma.

When I wrote last week that the Nikkei 225 (^N225) was headed towards the 12000 level I did not expect that we would be getting there so soon.

The Hang Seng (^HSI) has plummeted in the last two sessions and is now almost certain to test the August lows. As discussed many times previously the "de-coupling" thesis turned out to be just as bogus as the alleged benign risk transfer capabilities of CDO’s.

Having looked to be the outperformer within the mature European markets, Germany’s DAX has played catchup in the last two sessions and as this is being written, despite some bounce behavior by the FTSE in London, the DAX is down by more than 2%. However as the chart below reveals the 6500 area, which marked the level at which support emerged following the late February sell-off, may provide a place for the bears to catch their breath for a while.


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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CYMI  Cymer Inc.  

I shall be looking at intraday swing trades in the next few sessions and would treat position trading with the utmost caution. One of the few charts that looks promising on the long side is for Cymer (CYMI) which could make it back to the 50 day EMA in coming sessions.

SNPS  Synopsys Inc  

Synopsys (SNPS) also has some positive divergences in the context of a possible double bottom formation.

YRCW  YRC Worldwide Inc.  

YRCW has a distinctive bear flag formation and seems like a good example of how traders will be looking to sell rallies on technically weak stocks.