Daily Form October 12, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY OCTOBER 12, 2007       04:37 ET

The markets succumbed to "profit taking" in the afternoon yesterday with much of the liquidation coming in some of the Nasdaq stocks as anticipated in yesterday’s commentary. The Russell 2000 (^RUT) followed the inside doji formation from Wednesday’s trading with a long red candlestick that attempted a move up towards the historic highs early in the session but along with the rest of the market the index dropped steadily into the close resulting in a 1.2% loss for the day.

Whether this was a one day correction or marks something that could be more extended remains to be seen. Many charts are over-extended but that does not necessarily imply that the rather manic catch-up dynamics that have characterized recent trading will not reassert themselves soon. I shall also be watching the Asian markets (excluding Japan) for further signs that the euphoria which has powered the most bullish rally in twenty years and which led to new historic highs on several indices yesterday is peaking, or at least reaching a short term plateau.

Further weakness in the US markets could be one instigator, or concerns about the developing frothiness in markets in Bombay, Hong Kong, and Shanghai could be another instigator, whichever it is, the net effect could be to bring on vertiginous anxiety amongst the large funds that are fuelling this emerging markets rally and then the global markets, which have allegedly de-coupled according to the current rhetoric, may all start moving together again - downwards. I am not forecasting that this is imminent but simply suggesting that when it does occur, as it will, the sudden disappearance of liquidity will produce another high correlation event such as was seen in August.

The FTSE 100 (^FTSE) came within eight points in yesterday’s trading of matching its previous historic high from June 15th.

The CBOE Volatility Index (^VIX) produced its largest daily move yesterday since mid September as it moved up by more than thirteen percent.


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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K  Kellogg Company  

Kellogg (K) dropped below the bear flag formation that was discussed yesterday and after closing below the 50 day EMA looks as though it could be vulnerable to more downside.

ATVI  Activision Inc.  

Activision (ATVI) registered an Evening star candlestick and could be tradable down to the $21 level.

RHI  Robert Half International Inc.  

After moving decisively above the 50 day EMA last Friday on heavy volume, Robert Half International (RHI) has pulled back in a flag formation and I still feel that the $35 level is an intermediate target.

ADSK  Autodesk Inc.  

Autodesk (ADSK) is one of many tech stocks that looks over-extended with an incipient correction emerging.

BRLC  Syntax-Brillian Corporation  

In a similar vein to the interpretation of RHI above Syntax-Brillian Corporation (BRLC) has pulled back during this week since last Friday’s powerful surge and another leg up is to be expected.

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