Daily Form October 25, 2007


Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY OCTOBER 25, 2007       05:50 ET

In yesterday’s commentary I discussed the market’s resilience and in particular that shown by the Nasdaq 100 (^NDX). Early in the trading day yesterday I began to sense that this comment might have been a case of poor timing as it seemed that the fund managers that have been piling into the large techs could be starting to lose their nerve. In fact the index showed heroic resilience yet again as it almost erased all of the early losses from the session to come to rest very close to the gap down opening price. This is all the more remarkable in that certainly some fund managers were dumping constituents of the index as can be seen in the carnage for Broadcom (BRCM) down 17%, Altera (ALTR) down 15.7% and Amazon (AMZN) down 12%.

The restorative powers of the potential for further fed easing are providing a powerful astringent to the bears who keep trying to get some momentum going on the downside. Even with Merrill Lynch’s disturbing news about write-offs and equally disturbing news about plummeting housing prices and sales levels the Dr Pangloss adherents keep reminding us that all this bad news can only be good news for the markets.

I shall be a guest analyst on CNBC’s European Closing Bell this afternoon.

The S&P 500 (^SPC) also experienced a strong reversal as the intraday low yesterday penetrated below Monday’s low but again the index closed more or less at the opening price and right in line with the 50 day EMA. As noted yesterday the index could run into some chart resistance at the 1530 level which marks the 20 day EMA and above that at 1540 which represents last Thursday’s closing value.

The FTSE 100 index is off to a strong start in Thursday’s trading and is up by more than one percent after hesitating on October 12th within two points of its June high. As the chart reveal the index came down to a pivotal level yesterday that, if it was to break, would violate the up trend line through the lows since mid August.

The Bank Of England published its periodic Stability report today (available at the Bank’s website) and it contained some unusually pointed comments regarding the risks that it perceives are facing the UK economy. The real estate woes that are now manifesting themselves in the US could be on the horizon for the UK and the growing evidence of tighter credit conditions will not be good news for the over-leveraged UK consumer sector.


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

WYNN  Wynn Resorts Limited  

Wynn Resorts (WYNN) is revealing a succession of lower highs.

SLB  Schlumberger Limited  

Schlumberger (SLB) is gradually pulling back from Monday’s plunge and the stock will be on my radar in coming sessions for evidence that the bounce is faltering.

FRE  Freddie Mac  

The monthly chart for Freddie Mac (FRE) shows that the stock has now broken down to levels not seen since 2003.

AAPL  Apple Computer Inc.  

The chart for Apple (AAPL) over the last two sessions reveals a very similar pattern to that for the Nasdaq 100 (^NDX) and in some ways the stock embodies the hopes and aspirations for the technology sector as a whole.

There is no denying that Steve Jobs’ Apple is a wonderful business success story but we shall have to see whether iPods and iPhones and other examples of leading technology can lead the market through the minefields of dollar weakness, troubled real estate loans and SIV’s that will have to mark their holdings at some point to the market rather than their more benign scenario models

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