Daily Form July 9, 2008


Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JULY 9, 2008       05:47 ET

Yesterday’s bounce in US equities was not a high volume affair but it could mark a turning of the tide in the near term that could unsettle the complacency that has been developing amongst those holding large short positions in equities.

The S&P 500 (^SPC) turned around just above Monday’s intraday low and registered a 1.7% gain for the session. Layers of resistance should present a real challenge in the 1320-1325 region and my sense is that long only fund managers will not be seeing the present market as a buying opportunity, but rather a way of exiting troublesome positions at higher prices.

The Russell 2000 (^RUT) jumped by a rather striking 3.7% but much of this seems to have been short covering as, over the last couple of weeks, some traders were aggressively pushing the small caps down in a catch up play with the larger cap stocks.

One notable feature of Asian trading that recently completed Wednesday’s session, was the performance of the Nikkei 225 which gapped up on the open, following the US rally, but in the latter part of the session the Japanese index gave up all its early gains to end the session essentially flat.

The banking index (^BKX) finally bounced in a fairly sharp manner after dropping just below the 56 level I discussed last week based on the descending wedge symmetry hypothesis that I have tentatively advanced.

The economic news in the UK is getting gloomier by the day and the FTSE index officially registered a bear market decline during yesterday’s trading. We have now made a rather obvious triple bottom pattern in the region of 5350.

So are we all done now? If so it would be the neatest ends to a bear market on record.


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

XLP  Consumer Staples Select Sector SPDR  

The exchange traded fund for the consumer staples sector, XLP, has performed a trend reversal but has to break through potential resistance from the 50 and 200 day EMA’s. If it can make it through this barrier there is also strong chart resistance at the $28 level.

XME  SPDR Metals and Mining ETF  

The SPDR Metals and Mining sector fund, XME, sank further yesterday following Monday’s plunge but the intraday low tagged the 200 day EMA and an area of chart support.

SKF  UltraShort Financials ProShares ETF  

SKF which is an inverse leveraged tracker of the financial sector was one of the big losers in yesterday’s rally. A fairly obvious downside target is in the region of 130.

EK  Eastman Kodak Company  

Eastman Kodak (EK) has a bull flag pattern and should benefit from any overall market rally continuation.

BAC  Bank of America Corporation  

The reason for including the chart for Bank of America (BAC) was to illustrate the rather anemic volume seen in some of the financials that rallied yesterday.