Daily Form February 5, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY FEBRUARY 5, 2008       06:30 ET

Significant overhead chart resistance, apparent not only on many of the US stock indices but also on other global stock index charts, proved to be a barrier and interruption to the recent Fed easing inspired recovery efforts. The Nasdaq 100 (^NDX) is clearly having difficulties breaking through the area of chart resistance in the neighborhood of 1850 that I was pointing to last week.

The peaks in January and late February 2007 were just below this level and the late February peak of 1846 immediately preceded sell-off that first registered the broad market’s concerns about problems in the credit markets. The August 16th sell off turned around (at least on a closing basis) at 1846 and intriguingly this very same level has been confining the recovery efforts during the last two weeks.

The Russell 2000 (^RUT) still has some distance to cover before it makes its way back to the August 16th closing low of 768 but encountered resistance yesterday at the 50 day EMA. A more critical testing episode for the small cap index should arise about 40 to 50 points above yesterday’s close on this index.

The chart for yield on the ten year Treasury note (^TNX) suggests that there is indecision amongst traders and asset allocators regarding the likely severity of the economic slowdown.

Yields broke down in mid January from the trading range that had been in place for more than three years - between 3.75% and 5.25% - and we looked headed down to a new range with 3.25% as a lower boundary. The developing triangular pattern suggests that traders may be having second thoughts about how severe the slowdown may be and that a re-entry into the previous range is a distinct possibility.


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

WFC  Wells Fargo and Company  

As suggested last week for Wells Fargo (WFC), the shooting star pattern, almost exactly at the 200 day EMA, suggested that a period of retrenchment was imminent. The stock gave back 6.7% yesterday.

MW  Men"s Wearhouse  

Also noted last week Men’s Wearhouse (MW) looked susceptible to further weakness from the bear flag formation and yesterday, in similar fashion to WFC, it too dropped by almost seven percent.

ERES  eResearch Technology Inc  

eResearch Technology (ERES) looks vulnerable as it tries to break above $10.

RHI  Robert Half International Inc.  

Robert Half International (RHI) is developing a bullish pullback/flag pattern and I would expect to see higher prices ahead.