Daily Form May 30, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY MAY 30, 2008       06:08 ET

During the course of this week I have featured the chart for the yield on the 10 year Treasury note which has now sustained consecutive closes above the four percent level. The far end of the Treasury spectrum, not too surprisingly, is showing even more of a back up in yields. The 30 year bond has now returned to levels not seen since October 2007. Indicated on the left hand side of the chart is an area of resistance that will need to be overcome as traders prepare to test a possible five percent yield on this longest dated instrument.

There is clearly a major allocation shift taking place as the safe have appeal of Treasuries is diminishing, inflationary concerns continue to trouble and the economic data continues to question just how much contraction in the economy is really taking place. Bonds have been sold off quite aggressively recently, and while the intermediate trend for bond prices looks bearish, it would not take too much in the evidence to reignite recessionary fears and give a lift to bond prices and a scurrying for cover by many traders that are building up short positions.

The Midcap 400 (^MID) has recovered quickly from last week’s corrective episode and it will now become quite critical to see whether the index can successfully navigate its way higher through multiple levels of resistance that lie between 880 and 920. What would concern me and undermine my slightly bullish posture would be to see another failure to break and hold above 880.

The Jim Rogers commodity index (^RCT) is approaching what should be some support levels. The action in the metals and some agricultural commodity stocks has been more stealthily bearish recently and not received the same attention as that which has been focused on the pullback in the energy sector.

There are already too many pundits however that are beginning to celebrate the demise of the bull market in commodities and as always that suggests that there could still be a sting in the tail to come.


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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ABT  Abbott Laboratories  

On Wednesday I mentioned that Abbot Labs (ABT) looked promising on the long side and yesterday it moved up decisively on increased volume and pierced through a trading range barrier extending back to February.

AMGN  Amgen Inc.  

Amgen (AMGN) has been in a narrow range following its failed breakout pattern in March. The dynamics suggest that another attempt to break upwards could be imminent.

CY  Cypress Semiconductor Corporation  

Cypress Semiconductor (CY) should be monitored today for a possible breakdown as it dropped below the 50 day EMA on an uptick in volume and could fail to find support at the 200 day EMA.