Daily Form July 24, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JULY 24, 2008       05:33 ET

Shooting star candlesticks are starting to appear on some of the key US indices and sector funds suggesting that the recent rally is running into some overhead supply. The intermediate term target for the Russell 2000 (^RUT) is 740 but there is chart resistance between 720 and 740.

The Euro continues its descent in European trading on Thursday morning as it failed to mount a snap back rally during yesterday’s session. Targets below $1.56 are now realizable this week but the main story this morning is the drop of the British pound. It is notably weaker on all the significant cross rates, particularly against the Euro but also against the dollar.

The proximate fundamental factor cited is a very weak retail sales report released Thursday morning, but the hourly chart below of the GBP/USD cross rate shows a technically bearish pattern. As dollar strength seems to be gathering momentum the longer term forecast for sterling against the dollar could see rates moving back towards $1.85.

As anticipated in Monday’s column the Dow Jones Utilities (^DJU) is vulnerable as long term interest rates continue to move higher. Discussed below is an ETF that provides exposure on the short side to the sector.


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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XLU  Utilities Select Sector SPDR  

The chart for XLU illustrates the mini bear flag pattern that preceded yesterday’s 2.4% drop and a price target of $37 is feasible in coming sessions.

XOP  SPDR S and P Oil And Gas Exploration and Prod   

XOP, the exchange traded fund that tracks oil and gas exploration has performed well on the short side since my recent recommendation. A downward staircase/waterfall pattern is now manifesting itself which indicates broad based distribution.

NOK  Nokia Corporation (ADR)  

Nokia (NOK) has retreated to potential support since the large upward gap move on July 17th and the volume on the pullback has been subdued.

INFY  Infosys Technologies Limited  

Infosys Technologies (INFY) looks vulnerable and short entry opportunities above $42 would be worth considering.