Daily Form May 9, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY MAY 9, 2008       06:16 ET

One pattern that caught my attention yesterday, and which exemplifies the current predicament faced by several of the broad indices, was seen on the Nasdaq Composite Index (^IXIC). The chart formation is quite unusual as it is both an inside pattern and a tiny doji star that was registered exactly at the 200 day EMA for this index. This formation is usually seen at inflection points and highlights the kind of directional ambiguity which can often be a precursor to a trend day movement.


The Gold and Gold Mining Index (^GOX) has spent most of the month of May in an upswing since reaching down to the 200 day EMA. The gains have brought the index back to chart resistance and we may be close to done for this current recovery. As I suggested recently I would not be surprised to see another leg down in the precious metals ahead of a more sustained rally for the sector later in the summer.

Despite some better than expected results from some retailers the S&P Retail Index (^RLX) dropped below two moving averages yesterday.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY MAY 9, 2008



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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HOV  Hovnanian Enterprises  

In yesterday’s commentary I pointed to the bearish technical condition for Hovnanian Enterprises (HOV). One could have established a short position above the previous session’s low and if done this would have delivered an almost 14% return for the day.



XHB  Homebuilders Select Sector SPDR  

The chart pattern for the exchange traded fund for the homebuilders, XHB, has similar characteristics to the one for Hovnanian and it would appear that the mid March low is now in play.



IYM  iShares Dow Jones US Basic Materials  

The iShares Dow Jones US Basic Materials sector fund, IYM, is revealing some quite noticeable technical divergences in association with a revisit to recent highs.



KO  The Coca-Cola Company  

Coca Cola (KO) has continued to weaken after dropping below two key moving averages but may be reaching a potential bounce level at a new 2008 low.



AMKR  Amkor Technology Inc.  

One stock that I have on the radar screen for the long side in coming days is Amkor Technology (AMKR) The evolving technical pattern qualifies as a bull flag but the pullback may have a little further to run. For those who are willing to live with looser stop loss margins the risk/reward could favor entry today on any intraday weakness.