Daily Form February 11, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY FEBRUARY 11, 2008       07:12 ET

Narrow range trading prevailed in Friday’s session. The S&P 500 (^SPC) concluded with an inside formation and leaves intact the hypothesis that Thursday’s retesting of the January 23rd low was resolved in favor of further recovery for equities.

I must confess to being slightly wary at this stage about the reliability of this most recent testing and for me the hypothesis remains unproven. As previously suggested a decisive closing below 1260 could precipitate an avalanche of selling.

The financials have been leading the overall market to the downside and I am now paying close attention to the banking index (^BKX) to gauge where we may be in regard to any incipient recovery. The false breakout was not too surprising but now the return to the descending trendline from above will allow insight into whether more courageous fund managers may have already discounted all of the bad news for the sector.

Several Asian markets were closed in Monday’s trading, including Japan’s Nikkei, but the Hang Seng index (^HSI) re-opened after last week’s Chinese New Year celebrations. It had some catching up to do as other global markets continued downwards whilst it was closed at the end of last week.

The index, which is often seen as a useful barometer of the speculative sentiment amongst global asset allocators, has come close to a re-test of the January 22nd intraday low and could thus be aligning itself with the hypothesis that I discussed above.

The Mumbai Exchange (^BSESN), which was not closed last week, continued its downward trajectory and lost almost five percent in Monday’session.

Both exchanges, in Mumbai and Hong Kong, have seen acute corrections in the last few weeks with the Hang Seng down almost 40% from a high just below 32000 in late October and Mumbai down by more than 25% since its early January high close to 21,000.


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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GOOG  Google Inc.  

Google (GOOG) is at a critical chart level at which some support should be forthcoming.

GRMN  Garmin Ltd.  

The chart pattern for Garmin (GRMN) is unusually bearish with a staircase pattern of bear flags. Another has been forming in recent sessions.

FLEX  Flextronics International Ltd. (ADR)  

Flextronics (FLEX) has a pullback pattern that seems likely to be resolved in favor of higher prices ahead.