Daily Form September 28, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY SEPTEMBER 28, 2007       06:03 ET

The Nasdaq 100 (^NDX) continues to register intriguing candlestick patterns. The formation yesterday, known as a hanging man, is, in common with other recent patterns that have been recorded, also sometimes associated with topping and double top formations. Trying to pinpoint turning points is always hazardous and the current scepticism, from traders that prefer the short side of the market, about the longevity of the rally could provide a prolongation of this incremental upward progress as the scepticism is accompanied by a lack of conviction that fund managers are ready to liquidate long positions at present.

As already declared I suspect that next week, which also marks the beginning of the last quarter, could be a more lively trading week than the one that draws to a close today. The third quarter as a whole was extraordinarily dramatic but following the turmoil in August most of the trading since mid September has been rather subdued and technical.


The Russell 2000 (^RUT) remains above the 200 day moving average and appears to be poised for a revisit to the previous all time highs that were registered in June and then revisited in July.

My willingness to convert more whole-heartedly to the bullish case would certainly be strengthened if, in addition to the love affair with the large Nasdaq stocks, fund managers show an increasing appetite for the smaller cap issues found in this index.

In line with my comments about the rather polite tone to trading over the last couple of weeks the CBOE Volatility Index (^VIX) has returned to the pre-turmoil breakout levels and in simple numerical terms is less than half of the 35% plus readings seen in mid August. I would expect to see a resumption of market perceptions of higher implied volatility in the coming week.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 28, 2007



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

MSTR  Microstrategy Inc.  

Microstrategy (MSTR) looks to be headed even higher in the intermediate term following breakout action in yesterday’s sessions.



CENX  Century Aluminum Co.  

A similar continuation from a breakout seems likely for Century Aluminum (CENX) and the $60 level would seem to be a feasible target in coming sessions.



DVA  DaVita Inc.  

DaVita (DVA) has struggled to break above $62 with a succession of lower intraday highs and long upper tails. Meanwhile momentum and money flow may have been expended following the recent run up.

Daily Form September 27, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY SEPTEMBER 27, 2007       06:44 ET

Volume remained below par yesterday as most indices made minor gains. The S&P 500 (^SPC) has effectively been stalled over the last five sessions since the celebratory rally that followed the move from the Federal Reserve. The target of the mid July highs would seem be too tempting for traders to resist and I would suspect that from a seasonal point of view - with just two trading days to go before the end of the third quarter - we could well see a move up towards 1550 and possibly beyond.

The divergences that I have been mentioning over the last few sessions, and the increased volume that is to be expected in October, may require fund managers, as we enter the fourth quarter, to re-evaluate their anxious optimism that has characterized the nervously bullish tone to trading since the market moved beyond panic mode in mid August.


In yesterday’s commentary and during my contribution to CNBC’s European Closing Bell yesterday afternoon I discussed the chart that most intrigues me at present which is for the Nasdaq 100 (^NDX). Slightly less intriguing is the chart for the broader Nasdaq Composite (^IXIC) which is revealing several chart formations that are often seen at or near to exhaustion highs.

Spinning top candlesticks and doji star patterns that could become island formations are being registered at the moment and despite my willingness to believe that there is an enormous amount of capital on the sidelines waiting to be deployed I think the divergences and the relatively low volume conditions of late are good reasons to be wary.

We may be close to another tradable correction and that could arise during the course of next week as traders prepare for the employment data that may be discounted before the event as being weaker than market expectations.

If the data proves to be better than expected and consumer related stocks such as the retailers bounce the dissonant action amongst key sectors will be less worrisome.

The exchange traded fund, XLF, whose constituents come from the financial services sector, is presenting a slightly unorthodox bullish flag formation which could be pointing to an impending rally.

My only concern is that the candlestick that I have marked as the flag top has a long tail that coincides exactly with the 200 day EMA. A similar pattern is visible on the KBW Banking Index chart (^BKX) reviewed yesterday. This barrier should be breachable if the underlying market dynamics are to favor a bullish scenario for the remainder of this year.

As expected Gold encountered firm resistance in the vicinity of the $730 level that marked the previous highs from May 2006. Many of the mining stocks declined sharply yesterday and it would not be surprising to see a tradable correction in the precious metal in coming sessions.

However this may turn out to be a short lived and not steep correction and could be the prelude to further strength for the metal and the mining stocks later in the year.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 27, 2007



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

GY  GenCorp Inc.  

GenCorp (GY) was cited in Tuesday’s column as being close to completion of a bullish pullback pattern. The stock provided a decent entry opportunity in Tuesday’s trading and the stock surged by ten percent intraday yesterday despite closing poorly and still resulted in a six percent gain on the day.



NEM  Newmont Mining Corporation  

Amongst the gold mining stocks there were several that tumbled in yesterday’s session including Newmont Mining (NEM) that dropped by almost six percent on very substantial volume. I would expect the slide to continue a little further towards the $43 level but for longer term position players that favour the metal’s prospects this could represent a value area.



JNPR  Juniper Networks Inc.  

Some negative divergences are apparent on the chart for Juniper Networks (JNPR).



FAF  First American Corp.  

Calling bottoms precisely is not something that I recommend but the chart for First American (FAF) has clearly positive MFI divergences and yesterday’s inside session might prove to be an inflection point.

Daily Form September 26, 2007

CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC"s EUROPEAN CLOSING BELL TODAY

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY SEPTEMBER 26, 2007       06:20 ET

As noted in yesterday’s commentary the equity market is displaying quite notably divergent behavior and this pattern was repeated again in yesterday’s trading with the Nasdaq 100 (^NDX) moving up another one percent while the DJIA and S&P 500 essentially spent the session running in place and the small cap Russell 2000 (^RUT) declined by 0.3%. Given the economic backdrop, this kind of split personality market is not too surprising. The real estate sector continues to deteriorate, consumer confidence is slipping and final demand is set to erode, but all of this has to be seen in the context of what might well be the beginning of a serious Fed easing. Cynics would see this as a case of don’t fight the Fed’s desire to prevent asset deflation and perhaps even more cynically as a desire to fuel another "bubble".

The dissonant behavior is well reflected in our three sector/index charts for today where I shall focus on how yesterday’s close lies in relation to where those same indices and sectors closed immediately prior to last Tuesday’s strong upward move.

The most troubling sector appears to be the retailers, and the chart for the S&P Retail Index (^RLX) shows how the sector ran into resistance, and was rejected, as it attempted to penetrate the 200 day EMA. Yesterday’s close brought the index well below the close from Monday the 17th.  It now seems probable that the sector will want to revisit the mid-August lows, and a breakdown at that level would suggest that the divergences amongst the sectors may need to be resolved in terms of lower overall prices for equities.


The banking index (^BKX) has retreated almost back to the level of Monday 17th’s close which preceded the Fed easing. The overhead resistance on the index at 112 that we noted previously confined the upside and, in reviewing the charts for the individual banking stocks, there is evidence of fading momentum and money flow as many of the stocks turned back at overhead resistance.

The Russell 2000 (^RUT) reached down below the pivotal 800 level in trading yesterday, and on the surface, from the hammer candlestick, it would appear that the test met with buying support. However I remain to be convinced as the volume for the exchange traded fund, IWM, which tracks the index, registered less than one half of its 15 day moving average volume.

The S&P Midcap index (^MID) registered a small narrow range hammer candlestick that resembles that for the Russell 2000 both in terms of shape and proximity to key moving average levels. The index reached down in yesterday’s session to the 20 and 50 day EMA’s and closed more or less at the top of its range.

Once again the largely technical nature of the trading range yesterday and the low overall volume makes me cautious about relying on these apparently successful tests of key support levels.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY SEPTEMBER 26, 2007



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

YHOO  Yahoo Inc.  

Just over a week ago I suggested that although our initial target on Yahoo (YHOO) had been achieved, the chart pattern suggested that further gains may lie ahead. The stock has moved up more than ten percent since the original recommendation but now, at almost $27, appears to be reaching an area of chart resistance where some consolidation is likely.



BBY  Best Buy Co. Inc.  

The chart for Best Buy (BBY) well illustrates the predicament of the retailers. The strong gap up on September 18th surged above the 200 day EMA but the move was rejected in the next session and the pullback has brought the stock back down to the intersection of the 20 and 50 day EMA’s.

On one interpretation this pullback formation resembles a bullish flag formation. I would step aside at this juncture as the red candle at the top of the flag pole is a non-conforming feature for a bull flag, and failed flag formations are often a good indicator for taking the contrary position.



BRL  Barr Pharmaceuticals Inc.  

Another recommendation that has performed in line with the proposed target is Barr Pharmaceuticals (BRL) which I mentioned in the commentary for the 20th. The stock has completed the move up to the $55 level and there may be a pause and consolidation at this area of chart resistance.



EXPD  Expeditors Intl of WA  

Expeditors Intl (EXPD) should be monitored today for continuation of what could be a break above a trading range that has prevailed since mid August.

Daily Form September 25, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY SEPTEMBER 25, 2007       05:29 ET

There were some notable divergences in the performance of the major equity indices in yesterday’s trading. The DJIA slipped back 0.4% and the S&P 500 retreated by 0.5% whereas the Nasdaq 100 index (^NDX) managed to gain 0.4% and close at a multi-year high just above the 2050 level.

The spinning top formation at a significant high, which also coincides with the upper volatility band, is an intriguing pattern that is sometimes indicative of a market inflection point. I still would expect the S&P 500 to rally back to the mid July highs around 1555 and to that extent the large Nasdaq stocks, which are currently favored by asset managers, should have further uplift potential. Just how much longevity this rally still has should become clearer as the DJIA and S&P 500 take on their mid July highs and if the charts reveal more spinning tops and shooting star patterns then we might be in for a lively start to trading conditions in October.


Some of the weaker stocks yesterday were found in the financial sector with the banking index (^BKX) dropping 1.6% and the broker/dealer index (^XBD) suffering a more than two percent decline. The exchange traded fund for the financial services sector, XLF has reached an intersection of the 20 and 50 day EMA’s and the pullback pattern since last Tuesday’s surge suggests that, if the bulls are still in control of the agenda, we should see a resumption in upward momentum in the near term.

The pattern on the sector fund for the utilities, XLU, looks constructive on the long side in the intermediate term and I would be targeting the $42 level which was achieved in mid May.

The bullish reaction to the fed funds easing last week should play well for the small cap Russell 2000 index which dropped back towards the 800 level in yesterday’s trading. I would expect a bounce in the cash index at this level and the easiest way to play this would be via the exchange traded proxy, IWM.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY SEPTEMBER 25, 2007



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

TER  Teradyne Inc.  

There is a notable positive divergence on the chart for Teradyne (TER) between price action over the last few sessions and the upward slant to the MFI. This is a pattern which can produce explosive breakouts.



GY  GenCorp Inc.  

GenCorp (GY) has a mini bull flag formation but has to confront potential resistance at the 50 day EMA. Yesterday’s low volume session left a doji star formation with a minor loss but the long green candlestick from last Tuesday on heavy volume suggests that the pullback may be close to having run its course.



GR  Goodrich Corporation  

Goodrich (GR) is showing signs of a possible short term topping pattern with negative money flow divergences.

Daily Form September 24, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY SEPTEMBER 24, 2007       06:01 ET

Traders appear to be waiting for the right excuse to re-test the mid July highs on the S&P 500. The mini consolidation that has arisen following the upthrust session last Tuesday appears to be relatively restrained and the next obvious target for the bulls that are "banking" on a Fed induced recovery is the 1555 area which also marks the upward bound to the 50 period volatility bands.

Just how much further this rally can extend is open to a lot of conjecture but undoubtedly equities as rather simple mark to market assets that avoid the opacity and complexity of more exotic asset classes, are proving to be a strong attraction as asset allocators and hedge fund managers seek out gains as we approach the end of the third quarter.

Overseas markets are mixed as this is being written with the Hang Seng Index recording an almost 3% gain but some of the European markets are off to a mildly negative start. One index that is particularly interesting at the moment is the FTSE in the UK. This index still has to re-challenge to the 2000 highs and which has its own issues that linger from several local issues including, but not limited to, the recent U turn by the Bank of England and a real estate bubble that could be on the verge of deflating.


The banking index (^BKX) ran into resistance at the 112 level as expected and the sector is now poised in the narrow range between the 50 day EMA and the 200 day EMA. A lot of the individual banking stocks are facing the challenge of breaking above their mid July highs including Bank of America (BAC) and Wells Fargo (WFC) and the charts for these stocks are not providing unambiguous signals as far as accumulation and distribution.

Treasury instruments have reacted with much less enthusiasm to the FOMC’s easing than the way that traders in global equities have. The long end of the yield spectrum is showing the most of the move up in yields and the 30 year bond looks set to test the rather critical 5% level in coming sessions. The action in the forex market and the gold market are showing that while equity investors seem to subscribe to an economic outlook that resembles the Goldilocks fable there are other sectors of the financial markets that may be less sanguine about the soft landing scenario.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 24, 2007



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

CTAS  Cintas Corporation.  

Cintas (CTAS) moved above its 50 day EMA and an area of chart congestion on heavy volume in Friday’s trading and I would be looking for a move up to the $38.50 level in coming sessions.



HMIN  Home Inns and Hotels Management Inc.  

Home Inns and Hotel Management (HMIN) slipped below two key moving averages on Friday and I suspect that the stock could continue down towards the $35 region that was reached in mid August



XOM  Exxon Mobil Corporation  

Exxon Mobil (XOM) is encountering resistance at the late July highs and I shall be watching for further evidence that the momentum is fading and that a short term correction may unfold.



TSO  Tesoro Corporation  

Another pattern that looks promising on the long side is for Tesoro Corporation in the oil services sector. The close on Friday placed it above all three moving averages but the lack of conviction in volume action will keep me on the sidelines until further evidence emerges that the stock can break decisively above the $82 level

Daily Form September 20, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY SEPTEMBER 20, 2007       06:11 ET

Many charts from yesterday reveal extended upper tails or shooting star candlesticks suggesting that the powerful rally that began Tuesday afternoon appears to have encountered its first layer of resistance. In the case of several key charts this is occurring at levels close to the mid July highs. In particular the chart below for the Nasdaq 100 index (^NDX) indicates that moving above the 2050 level may require a period of re-grouping and consolidation.

In terms of the overall market, after two strong upward sessions some "profit taking" is likely and the European action this morning is suggesting that the jubilation from Tuesday’s FOMC decision may have found its zenith in yesterday’s trading.

I shall not publish tomorrow as I shall be presenting at the Salon du Trading Expo in Paris.


As discussed recently the gold and silver index (^XAU) has made a dramatic V shaped recovery since mid August. The index which is weighted towards the gold mining stocks has now pushed substantially above the mid July high water mark but yesterday’s long upper tail could be pointing to the need for some digestion of the gains and a period of consolidation. In addition the precious metal is close to the levels from May 2006 and may also be ready for a period of retrenchment.

A breakout above the $730 level on the metal is a possibility but traders need to be vigilant regarding the possibility of a "false" breakout that could trap some players for both the mining stocks and the COMEX futures.

The exchange traded sector fund, XLY, which consists of consumer discretionary stocks clearly found the going tough as it tried to move away from the 200 day EMA. The close was at the bottom of the daily range and still in close proximity to the long term moving average.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 20, 2007



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

WMB  Williams Companies Inc.  

Williams Companies (WMB) which is engaged in the natural gas industry reveals a very striking shooting star formation. Although the intraday high broke above the previous mid July high the close was below the highest close from the earlier period. This is not a pattern that I would feel confident in taking up a short position just yet, but the stock will be on my watch list in coming sessions for further signs that a tradable correction could be imminent.



BRL  Barr Pharmaceuticals Inc.  

One pattern that looks promising on the long side is for Barr Pharmaceuticals (BRL) and I would be targeting the $55 level as the stock broke away from all three moving averages yesterday.



WFC  Wells Fargo and Company  

The chart for Wells Fargo (WFC) again reveals the shooting star formation with the intraday high turning back at the $38 level which also coincides with the recovery high from mid August when the banks lead the way out of the febrile market conditions that prevailed just one month ago.



The purpose of this mail is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com

Daily Form September 19, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY SEPTEMBER 19, 2007       06:06 ET

The rejoicing at the FOMC announcement yesterday continued beyond the US markets and has generated powerful rallies across the global equity markets. The fifty basis points of easing, and the accompanying statement that suggested that further easing may be required, was perhaps even more than traders were hoping for and the explosive rally allowed many indices to blast through obvious hurdles. As I said yesterday if the Russell 2000 (^RUT) was able to break convincingly above the 800 level then the mid-July highs come back into play. The four percent gain in the small cap index now puts this target firmly on the agenda.

The Hang Seng closed up almost 1000 points or 4%, the Nikkei 225 managed a 3.5% gain and, as this is being written, the European markets are all up approximately two percent. Let’s see what the follow through looks like in the coming days but it is hard to question those long green candlesticks that are all over the charts that I scanned this morning.

In particular there were some very nice green candlesticks on stocks discussed for the long side in the Daily Form Commentary over the last few days. The homebuilders took off as expected and Hovnanian (HOV), mentioned here yesterday, moved up a stunning 28% with the added bonus that the open was very close to Monday’s close providing an excellent entry opportunity. Lehman Bros (LEH) also mentioned favorably yesterday morning added 10% with similar entry possibilities and Kroger (KR) that I tipped in Monday’s commentary moved up almost eight percent from Tuesday’s open.


The move in the banking index (^BKX) reflects the very positive reception that traders gave to banking shares as the FOMC’s decision provides them with a more favorable interest rate environment. For now I shall put aside the complex structural issues that I touched on yesterday but there is the lingering suspicion that these will have only been tangentially ameliorated by the fed funds easing. The index faces a chart hurdle and the 200 day EMA at 112.

One of the very few charts to show a long red candlestick from yesterday’s trading was for the CBOE Volatility Index (^VIX) which dropped by 23%. While the market’s perception of fear may have undergone a major shift yesterday the likelihood of strong moves in both directions persists and it may be that this index over-reacted to the jubilant mood yesterday afternoon.

This is what was said in yesterday’s commentary about the homebuilding sector -

Could it be that the market has digested all of the negatives for the homebuilding sector? The chart for the ETF for the sector, XHB, shows the relentless decline over the course of the last few months in which the sector has followed the 20 day EMA all the way down. But there are some positive divergences emerging in the MACD and MFI charts and it may be that the recognition that the FOMC is officially "worried about" a slowdown is the news that could create some buying and short covering in the sector.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY SEPTEMBER 19, 2007



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

HOV  Hovnanian Enterprises  

I did not expect quite the explosive move when I noted yesterday that Hovnanian (HOV) stock appears to have been sold down to levels where the risk/reward ratio favors some kind of bounce.



KR  The Kroger Co.  

Monday’s positive comments on Kroger (KR) came to fruition yesterday as the stock tacked on almost eight percent.



LEH  Lehman Brothers Holdings Inc.  

Lehman Brothers (LEH) surprised traders with a less damaging earnings statement than some had feared and was rewarded with a ten percent uplift. This was another of yesterday’s recommendations.



The purpose of this mail is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com