Daily Form May 21, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY MAY 21, 2008       06:24 ET

QQQQ, the exchange traded fund that tracks the Nasdaq 100, pulled back by 0.8% in yesterday’s session after Monday’s flirtation with the 50 level which coincides approximately with the 2000 level on the cash index. There has been a pick up in volume during the last few sessions suggesting that higher prices are beginning to attract the bears and, as I have recently commented, there is growing evidence that a corrective phase could be imminent.

Reviewing the longer time frame, the $52 level on the QQQQ fund looks like a viable target before we see a substantial correction but the fact that many traders may be interpreting the charts in a similar fashion could mean that further progress towards this level will bring out the short sellers en masse .

Most global markets were considerably weaker yesterday than the eventual performance seen in the US. London’s FTSE tumbled by 2.9% after showing relative strength last week. There are two lines of chart support for the index below yesterday’s closing level. The nearer to that close is the 200 day EMA at 6125 followed by an even more substantial one at around 6060 which also coincides with the 50 day EMA.

In Monday’s column I commented that amongst the Asian sector funds - "EWT which tracks the Taiwan market, could become vulnerable as it attempts to overcome last October’s highs". The exchange traded fund dropped by 3.5% yesterday after registering the shooting star formation in Monday’s session.


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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

MSTR  Microstrategy Inc.  

Microstrategy (MSTR) looks vulnerable as the definitive technical characteristics of a bear flag are in evidence.

STX  Seagate Technology  

I would be looking at the long side for Seagate Technology (STX) and would expect it to challenge the 200 day EMA in coming sessions.

PCP  Precision Castparts Corp.  

Precision Castparts (PCP) has a bullish flag pattern with the 200 day EMA likely to provide a support in the developing pullback phase.

CHK  Chesapeake Energy Corporation  

Chesapeake Energy (CHK) reveals an evening star and yesterday’s drop following the star formation was on substantial volume. Just one of many energy stocks to keep on the radar for when the tide turns.

PENN  Penn National Gaming Inc  

The chart for Penn National Gaming (PENN) shows a basing pattern with positive MACD divergences although the volume picture could be more compelling.