Daily Form August 18, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY AUGUST 18, 2008       06:07 ET

Sometimes financial markets are relatively easier to trade than at other times as trends and inter-market strategies become quite transparent. Since it became apparent that the commodity "bubble" was starting to deflate in mid July and after the ECB confirmed in its early August statement the market’s own interpretation that the Euro was topping out and that a major dollar rally was getting under way, the direction of many asset classes, especially the currencies and crude, has been quite predictable.

The situation with US equities has been less easy to discern but the Russell 2000 (^RUT) has continued to reward on the long side. In Friday’s trading the index has returned to the early June high and it would not be surprising to see some consolidation on this index near current levels.

The S&P 500 (^SPC) has almost attained the 1320 level which represents the 50% retracement of the high from mid May and the low from early July. Looking further out towards the 1350 level, the bullish momentum will need to gather some pace to take out the 62% retracement level.

One of the best recent trades has been on the short side for sterling as discussed here several times in the last few weeks. The $1.85 level shows chart support but longer term, as revealed on the weekly chart, it would not be surprising to see the British currency heading towards the $1.70 level.

The price of gold has been dropping rapidly in tandem with the strong showing of the US dollar. The chart below suggests that the CBOE Gold Index (^GOX) could be setting up for a testing of the 120 level which suggests further downside potential for both the metal itself and the gold mining stocks.


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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WYE  Wyeth  

The recovery in Wyeth (WYE) appears to be running into resistance.

Q  Qwest Communications International Inc.  

Qwest Communications (Q) shows intermediate term positive MACD divergences and a bullish short term flag pattern.

TSO  Tesoro Corporation  

Tesoro (TSO) appears to be in an intermediate term basing pattern but the near term direction is less clear, although Friday’s tiny doji/NR7 pattern is often seen ahead of a decisive move.

CSCO  Cisco Systems Inc.  

Friday’s action for Cisco Systems (CSCO) shows a shooting star pattern exactly at the 200 day EMA level.