Daily Form February 20, 2008


Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY FEBRUARY 20, 2008       05:20 ET

It was another frustrating day for the bulls as an early strong rally faded steadily as the day wore on. Credit Suisse’s confession to the fact that some of its London based traders had made "pricing errors" with synthetic CDO’s which necessitated a $3bn write-off (oops!) added a new dimension of hilarity to the ongoing troubles with structured credit products. Bill Clinton often used to say "we have to get this problem behind us" in regard to the numerous hiccoughs that arose during his presidency and there are doubtless many bankers that feel exactly the same way about the CDO mess.

The Nasdaq 100 (^NDX) notably failed to put in any kind of meaningful assault on the 1850 level that needs to be mounted if the bulls are going to take this market higher and the odds are now increasing that we may be headed towards a re-test of the January lows. The triangular pattern could endure further but we are now entering a more critical time frame for this index when the congestion pattern will need to be resolved. Until this resolution is manifested in a directional breakout we may well see more frustrating reversal sessions like the one seen yesterday.

I shall be a guest analyst this afternoon on CNBC’s European Closing Bell (around 16:30 London time)

The yield on the ten year note has re-entered the trading channel above 3.8% that was discussed last week. Amongst the many factors at play here is a growing anxiety about commodity based inflation which posed a shock for the Chinese economy yesterday when food prices surged and an annualized rate of inflation close to 8% was recorded.

Further evidence that global markets are pre-occupied with the steady increase in food prices and the reality of $100 plus oil again is driving the precious metals again. The price of gold is now approaching all time highs again and if the gold index (^GOX) can push convincingly above the 190 chart level, the $1000 target for the precious metal looks to be achievable, and perhaps in the not too distant future.

The Nikkei 225 (^N225) fell back by more than three percent in trading overnight in Tokyo. The pattern on the index chart is another good example of the evening star candlestick which is cropping up many charts at present.


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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NUAN  Nuance Communications Inc.  

Nuance Communications (NUAN) has a bullish pullback pattern where price has returned to the conjunction of all three moving averages.

WYE  Wyeth  

Wyeth (WYE) could be headed towards a test of chart resistance at $44.

LEH  Lehman Brothers Holdings Inc.  

Lehman Brothers (LEH) has moved within a clearly defined range since last August and we now seem headed back down towards a testing of the August low near to $50.

BVN  Compania de Minas Buenaventura SA  

BVN has some typical topping characteristics.

ELNK  EarthLink Inc.  

Earthlink (ELNK) reveals the converse of the evening star pattern and the often bullish morning star formation is given further credence by the reversal off the 200 day EMA.