Daily Form June 6, 2008


Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JUNE 6, 2008       05:54 ET

Very much in line with yesterday’s discussion it was the small caps, the midcaps and the techs that were in the vanguard of the very strong showing in the US equity markets. Repeating a pattern previously observed the markets did not wait for the employment data to be released today but decided to get its revenge against the short sellers in first.

The S&P 400 Midcap (^MID) must surely be targeting the 920 level and the chart pattern is revealing a lot of vitality.

The Russell 2000 (^RUT) was a major mover yesterday and the 800 level now should be taken seriously.

I shall update the relative performance charts that I showed yesterday and the price action in the last few sessions, especially yesterday, underlines the point that fund managers are now aggressively seeking out alternatives to the components of the S&P 500.

One of the charts that I intend to discuss when I am a guest analyst on CNBC’s European Closing Bell this afternoon is the cross rate between the Australian dollar and the Japanese yen. The breakout from the upward wedge pattern is pointing to a resurgence of the carry trade being implemented at least for this currency pair. This should also be monitored in coming sessions as inflection points on these key carry trade cross rates are highly correlated with inflection points on global equity indices.


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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EWJ  iShares MSCI-Japan  

Yesterday’s comment that The sector fund for Japan, EWJ, looks constructive and echoes the technically well behaved pattern of the Nikkei 225 can be repeated today and overhead targets from last November and early December are now feasible targets.


Watching Jean Claude Trichet’s press conference yesterday afternoon when the ECB decided to leave rates on hold there was a clear hint that a hike in short term rates for the euro in July is a strong possibility. The euro rallied quite strongly and is now challenging the 1.56 level against the dollar. As the chart below suggests there are two clear barriers ahead. One layer of resistance lies exactly at 1.58 and then of course there are the historic high levels at 1.60 that would be a very formidable challenge.


The Brazilian index (^BVSP) performed exactly on cue from a technical perspective as it found support at the 50 day EMA and took advantage of the merriment on Wall Street to add 3.7% and put itself in contention to challenge the historic highs again.

WMT  Wal-Mart Stores Inc.  

One of the positive surprises that helped to fuel the rally yesterday was across the board strength from retailers. WalMart surged ahead on three times the daily volume but now faces a potential hurdle at the $60 level.

RTH  Retail HOLDRS  

The exchange traded fund for the retail sector, RTH, reveals a constructive pattern that could be leading towards a breakaway. Depending on the market’s view of the employment data today we could see a real assault on the $100 level as a prelude to an upward breakout move.