Daily Form September 28, 2007

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.


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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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.

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