Daily Form May 28, 2008

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Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY MAY 28, 2008       06:50 ET

Considering some of the bleak economic news yesterday US equities performed relatively well and regained some composure following last week’s selling. This was perhaps more impressive against the backdrop of the rather problematic chart patterns that we touched on in yesterday’s column. I also indicated in yesterday’s column that despite concerns about the technical pattern on the S&P 500 chart there were several others such as the S&P 400 Midcap and the Nasdaq 100 where the patterns were less ominous.

The Nasdaq 100 (^NDX) rallied ahead of the pack yesterday and recorded an almost 2% gain on the session. The four day reversal pattern that has been highlighted on the chart could well have been reassuring to fund managers that have been loading up on tech stocks but I suspect that this index will have to show continuing leadership if the bulls are to retain the upper hand during this period of conflicting and often dire economic data.

I shall be the guest presenter at a live webinar on Wednesday May 28th 2008, courtesy of the International Securities Exchange in Chicago. The topic of the presentation is The Carry Trade, Leverage and Capital Markets Liquidity and will cover the close relationship between certain cross rates in the forex market and the behavior of global equity indices.

The event takes place at 3pm EDT or 8pm London time and further details can be found here.

The pattern on the chart for the yield on the ten year Treasury note shows a growing appetite by traders to take on the challenge of the 4% yield level.

Amidst all of the cross currents and debate about inflation versus deflation there is the rather pivotal issue of whether this benchmark yield can sustain closes above the 4% level. The resolution of this matter will be a key barometer as to how the market is discounting the longer term economic outlook.

The chart for the exchange traded energy fund, IYE, which tracks the Dow Jones US Energy Index is showing a pick up in volume that could reflect the bearish bet being made by some traders who are expecting a rolling top pattern to emerge.

The gold index (^GOX) dropped back fairly sharply yesterday and dropped below two key moving averages. I have similar reservations as to how severe this technically weak pattern might be, as I did in relation to the chart for the S&P 500 after last Friday’s close. What is apparent on the chart is the "false" breakout from the triangular pattern highlighted. For those long the precious metal and the mining shares a successful test of the 200 day EMA will be critical.


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

ABT  Abbott Laboratories  

Abbot Labs (ABT) looks promising on the long side.

CECO  Career Education Corp.  

Career Education Corp (CECO) has mini bear flag and waning momentum and money flow.

BA  Boeing Company The  

I suspect that Boeing (BA) could encounter further weakness as it tries to make it back above $85.