Despite a fairly robust upward move yesterday several indices saw trading that was entirely confined within the range of Friday’s session. The S&P 500 (^SPC) was one of the indices that registered an inside day and there was a further move into the apex of the triangular formation suggesting that we should see a strong directional move in the near term.

As a position trader in the current difficult market environment, I find myself, much more than usual, striving to select trades aimed at achieving a combination of long and short positions with a relatively neutral portfolio delta (or tendency of the positions to provide a degree of internal hedging.)

It is also worth saying that under such circumstances it is wiser to trade in smaller position sizes than one would typically employ during less erratic market conditions



The yield on the Treasury note (^TNX) shows a tiny doji star formation at the bottom of the current rage. I am still paying close attention to yields as I would expect to see a break down to a lower trading range if we need to discount more than a shallow and short-lived slowdown.



The Nikkei 225 (^N225) resumed trading on Tuesday, after an extended weekend, and dropped down by another one percent to close at its lowest level since October 2005. The weekly chart reveals a discernible head and shoulders pattern with the further implication that there is no obvious support level that one could point to until the index gets closer to the 12000 level and this would also coincide with a level attainable by subtracting the distance to the top of the head from the current neckline.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JANUARY 15, 2008

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.

Teva Pharmaceuticals (TEVA) looks to be ready to test the base of the recent breakout level.



Reliance Steel (RS) could run into resistance as the pullback approaches key moving averages.



Patterson-UTI Energy (PTEN) has reversed quickly on above average volume over the last three sessions.



Ericcson (ERIC) has favorable momentum characteristics which could propel it towards the 50 day EMA around $25.50 at which level we would want to exit.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.