Daily Form February 27, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY FEBRUARY 27, 2008       06:53 ET

Traders did not have far to look for excuses to sell equities yesterday but, despite some very weak data, the market continued to rally. Volume needs to be more substantial to make the bullish case more compelling and there is a suspicion that the market is rising in part because the short sellers seem to have retired to the sidelines.

Several global indices, in addition to those in the U.S. have now risen to fairly critical threshold levels where we have almost broken through the triangular patterns which have characterized trading over the last several weeks.

The S&P 500 (^SPC) reached up and tagged the 50 day EMA and is now poised for a run above 1380 towards 1400 which would propel us beyond the congestion pattern and really put the bulls to the test.

Volume would have to kick following such a breakthrough in order for me to be convinced that we are witnessing a decisive shift in market dynamics rather than a potential trap for the unwary.

The broker/dealer index (^XBD) has been meandering just below key moving average resistance and yesterday registered a spinning top candlestick formation after appearing to penetrate resistance.

A leading financial regulator in the UK has suggested that the banking industry, even once it moves beyond the current adversity, will almost certainly not be reverting to the business model of originating loans and then distributing them through securitizations and CDO’s. If this analysis is correct this would pose a threat to the very lucrative areas of financial engineering that have contributed in a big way to the profitability of the major investment banks.

The Hang Seng index (^HSI) rallied strongly in overnight trading and came to rest very close to the expected resistance level where the 200 and 50 day EMA’s are aligned. As noted before this index is always worth monitoring as a barometer to the speculative sentiment of the major hedge funds, and if we get a break above the formidable overhead resistance, this would suggest a more positive outlook across the board for global equities.


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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LAMR  Lamar Advertising Company  

In yesterday’s commentary I cited Lamar Advertising (LAMR) on the long side and even after the rise of 4.7% I suspect that there is further to go and I would keep to yesterday’s suggested target of $44.

MTH  Meritage Homes Corporation  

Meritage Homes (MTH) produced a shooting star formation with a very long upper tail as it ran up to the $18 level where it has turned back three times already.

CI  CIGNA Corporation  

The recent chart pattern for Cigna (CI) and the uptick in volume yesterday suggests a near term price target in the vicinity of $50.

PRU  Prudential Financial Inc  

I would favor a short position on Prudential (PRU) as the ascending channel following the sell-off earlier in the month appears to be running up to a rejection level.