Daily Form December 15, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY DECEMBER 15, 2008       06:18 ET

The resilience of US equities on Friday suggests that the market is seeing a glass that is half full rather than half empty.

One of the more intriguing patterns on the charts is the pronounced triangle or pennant formation for the Russell 2000 (^RUT).

The 38% retracement of the 2008 high and low is to be found around 520 which would require a concerted effort by the bulls, but, seasonality and the sense that no matter how bad the economic numbers are the market can take them in its stride, could see us make significant progress towards this intermediate term target.

My gut feeling, not necessarily something that can be adequately justified by the charts, is that in Q1, 2009 the economic news could deteriorate so much that the half empty glass perception will become harder to avoid.

The Euro has more or less achieved the target I have been proposing in this column over the last month. At this level I would suggest that the easy money has been made on this rally and that I would be looking to retire short positions in general on the major cross rates against the dollar.

When discussing the chart for the Gold & Silver Index (^XAU) on CNBC’s European Closing Bell last Friday I pointed to two revealing features for this sector. The first is that this is one of relatively few sectors to be trading decisively above its 50 day EMA and secondly that the break away from the bull flag earlier this month suggests that there is further to go on the upside. The mining stocks could also benefit from the fact that there is some distance for them to cover in order to revert towards a more typical ratio between the price of gold and the miners.


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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DIS  Walt Disney Company The  

I would favor the long side with Disney (DIS) as the flag formation meets all of the requirements.

LSTR  Landstar System Inc.  

The chart for Landstar (LSTR) reveals a well defined bullish flag formation.

TRID  Trident Microsystems Inc.  

Yet another bullish pullback pattern can be seen on the chart for Trident Microsystems (TRID) although this stock already moved up substantially in Friday’s trading and may have less on offer than the previous two bullish flag suggestions.

IYR  iShares Dow Jones US Real Estate  

IYR, which tracks the Dow Jones Real Estate Index, is revealing some rather noticeable positive divergences.

UDN  PowerShares DB US Dollar Index Bearish  

In the longer term I still favor lower values for the dollar index and this can be played via the inverse sector fund UDN. However given my prior analysis of the fact that the Euro has just achieved a major target and also from the evidence on the chart below, we can see signs of overhead resistance to further dollar weakness in the near term and I will be exiting this inverse fund later today and moving to the sidelines for the time being.