Daily Form February 25, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY FEBRUARY 25, 2008       06:10 ET

The big question for the upcoming week is whether we shall see a continuation of the erratic and abrupt intraday reversals that have been so evident during the last few weeks or are we on the verge of a major breakout? During the course of last week the persistent exploration of the boundaries of the narrowing triangular formations evident on most of the index charts, caused the kind of whipsawing that is hazardous to position traders. As the week wore on the thrashing around within the apex of the triangles began to appear unsustainable and we appear to be on the verge of a resolution with a directional breakout becoming more and more likely.

Friday’s late afternoon surge which saw the DJIA reverse from a loss of about 130 to close with an almost 100 point gain was attributed to rumors that positive news was imminent on Ambac (ABK) one of the troubled monoline insurers. Could this be the trigger that will propel the indices up and out through the tapering confines of the triangular patterns?

Overnight trading in Asia produced some interestingly divergent behavior. The Nikkei 225 (^N225) rallied strongly, perhaps inspired by the late rally on Wall Street and optimism that there could be a turn in sentiment on the question of bond and CDO guarantees.

The Hang Seng index (^HSI) barely moved and finished the day with a tiny loss.

European markets are also in an ebullient mood on Monday morning with the FTSE challenging 6000 and a strong prospect that the DAX is on its way to 7000. As I suggested when I was interviewed on CNBC last week I do believe that the DAX is headed for a test of 7200 and if that can be penetrated the dynamics could be surprisingly positive for the German index in the intermediate term.

The chart for the Shanghai exchange (^SSEC) is moving out of sync with other global indices. Weighing on this index is undoubtedly the increasing concerns being expressed by Chinese authorities about rapidly inflating food prices and currency appreciation issues are likely also to produced a shifting in the tectonic plates of the Sino/US trade relationship.


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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MS  Morgan Stanley  

A couple of investment banks showed up in one of my more reliable screens for long trades today. One was for Morgan Stanley (MS) and a similar configuration is seen on the chart for Merrill Lynch (MER).

NUAN  Nuance Communications Inc.  

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

WMT  Wal-Mart Stores Inc.  

WalMart (WMT) looks to be somewhat vulnerable as it is struggling to stay above the $50 level which it rallied to following its most recent sales reports, and there is fading momentum and distributive money flow

SNDK  SanDisk Corporation  

On Friday SanDisk (SNDK) formed a striking hammer candlestick with some positive divergences. The stock appears to have been sold down to a level where a bounce seems likely.