Daily Form February 8, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY FEBRUARY 8, 2008       07:10 ET

Yesterday was an intriguingly complex session for the stock market and especially for US Treasuries. The pre-market action and the backdrop of fairly severe sell-offs in Europe following the ECB’s recalcitrance created a sense that we could see some severe downside action. Instead we saw an erratic session in which, at least on the surface, some key levels were tested successfully.

In particular the Nasdaq 100 (^NDX) appears to have turned around above the intraday low from January 23rd. Let’s see whether enough traders and fund managers believe that a sustainable short term base is in place for there to be a meaningful rally. If enough adventurous bulls do appear then any rally will face stiff resistance at the 1850 level.

I shall be taking part in a one day seminar at London’s Canary Wharf on February 19th and will be discussing the dynamics of Trend Days. More details can be found here

Yields on long dated Treasuries moved up strikingly yesterday. The triangular pattern that I discussed in Tuesday’s commentary gave way to the upward movement in yields that I suspected and the intraday high yield exactly touched the 3.8% level that was discussed. The good news for the banking sector is that the steepening of the yield curve that the Fed has been trying to engineer is now evolving. The bad news however is that higher long term yields are not welcome to those hoping for help with their adjustable rate mortgages.


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

ANN  AnnTaylor Stores Corp.  

I noted ealier this week that Ann Taylor’s chart (ANN) looked constructive on the long side. The stock moved up by more than five percent yesterday and the chart formation could be a precursor to a break above the congestion formation.

However I would suggest that caution is in order at present with this and other potential breakout patterns as many of them can easily become bull traps.

CA  Computer Associates International Inc.  

Computer Associates (CA) recorded a tiny doji star after three days of pulling back from last Friday’s surge on very heavy volume. The risk/reward ratio looks relatively attractive on the long side for this pattern.

CCI  Crown Castle International Corp  

Crown Castle International (CCI) turned back at the chart resistance that was discussed here a week ago and has dropped by more than 10% since then.