Daily Form October 26, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY OCTOBER 26, 2007       03:53 ET

The rather skittish tone that has characterized trading during recent sessions was again in evidence in yesterday. The broad equity indices diverged with the large cap DJIA and S&P 500 ending essentially unchanged but the Nasdaq 100 (^NDX) experienced the most attrition with a 1.2% decline and the small cap Russell 2000 (^RUT) suffered a smaller decline of 0.6%. The index closed in the midst of two key moving averages - the 50 and 200 day EMA’s and just six points above the pivotal 800 level.

One of the more intriguing developments yesterday was Warren Buffet’s comments about an overheated Chinese market and the subsequent 5% drop in Shanghai. He was also reported as making the ironic remark in relation to cashing out of one of his very rewarding investments in China that he had sold too soon. This echoes the famous quote from the first Lord Rothschild who was asked what the key to his investing success was and habitually replied "I always sell too soon." Sage advice for an investor with a long time frame but advice that doesn’t really help the trader looking for good short trades. In that regard the Hang Seng Index (^HSI) finally mustered the nerve to break above 30,000 as this is being written, and those trying to pick a top here keep running for cover.

The S&P 500 (^SPC) took an erratic intraday excursion yesterday and ended more or less where it had started. The close was right on the 50 day EMA providing little insight as to the probable near term direction.

The leadership being provided by the tech stocks has run into some strong headwinds with the recent sell off in the semiconductor sector. Broadcom’s earnings disappointment from earlier in the week has contributed to a rather steep fall for the exchange traded sector fund, IGW, which has now retreated to the mid August low.


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

SYNA  Synaptics Incorporated  

Mentioned here recently in the context of its negative divergences, Synaptics (SYNA) after appearing to be able to defy gravity, has corrected by almost ten percent in the last two sessions.

HON  Honeywell International  

The recent pullback/bounce in Honeywell after the plunge down on October 19th could find renewed selling pressure close to the $60 level.


Qualcomm (QCOM) has a mini bear flag formation as it straddles all three moving averages.

RYL  Ryland Group Inc  

Ryland Group (RYL) peeked and closed just above a congestion range on heavy volume yesterday. The underlying momentum and money flow also look positive.

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