Daily Form October 10, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY OCTOBER 10, 2007       06:03 ET

As I was scanning the charts this morning I was struck by the number of stocks that seem to be in vertical ascent patterns (two of which are mentioned below) and also the absence of any clearly defined setups on the short side. Yesterday’s late rally, based supposedly on a benign interpretation of the FOMC minutes that were released, is convincing me that all of the sceptics are being systematically converted to the bullish case and now are involved in a case of manic catch up.

The bears are either in early hibernation or are biding their time and sensing that there will be a better opportunity, as the market becomes really over-extended, to ambush the latecomers to this extraordinary "V" shaped recovery.

The Nasdaq 100 (^NDX) moved higher yesterday and has now completed an almost twenty percent recovery since the mid August lows. The fact that the index has, over the last few sessions, been above the upper 50 day volatility band, in a period that covered much greater than typical market volatility, suggests that we are currently experiencing extreme moves to the upside to match the extreme moves to the downside in August.

The S&P Midcap index (^MID) is within a few sessions (perhaps even today) of joining many other indices that have broken to new historic highs.


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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DRYS  Dryships  

Dryships (DRYS) has more than doubled since the mid August low and yesterday saw another ten percent being added to the parabolic ascent pattern.

GS  The Goldman Sachs Group Inc.  

Since peeking below $160 in August Goldman Sachs (GS) almost peeked above $240 in yesterday’s trading. No matter how much adversity was being presented to the investment banks during the August turmoil, the fifty percent move in six weeks speaks volumes about the resilience of Goldman as a company but also how much the market is coming to rely upon a cooperative central bank coming to the rescue of the financial economy.

GRMN  Garmin Ltd.  

After reviewing all of these super bullish charts I hesitate to mention Garmin (GRMN) on the short side. Just a week ago "investors" seemed to be viewing the company as being in trouble following business developments that raised concerns about increased competition.

In more typical market circumstances I would be looking to get short again not far from where the stock closed yesterday, but, in these peculiarly euphoric times, I shall probably sit on the sidelines unless I see an intraday price avalanche developing.

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