Daily Form October 5, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY OCTOBER 5, 2007       04:36 ET

Subdued trading yesterday produced rather narrow range, often inside day patterns, as traders prepared themselves for the release of September’s employment data today.

The Russell 2000 (^RUT) produced another small candlestick which was entirely within the range of Wednesday’s trading, itself a fairly narrow range. I shall be watching how this index behaves in the aftermath of the data to be released today, and a determined effort to establish new historic highs on this index would bode well for the overall market.

The European Central Bank and the Bank of England both left their key short term rates on hold and once again the pundits will expend an enormous amount of effort today trying to analayse the nuances of the employment data and how this will impact on future Fed policy. Unless we get a very surprising number, either very strong or very weak, then there will be little to further clarify the likely outcome of the next FOMC meetings at the end of this month.

XLF, the exchange traded fund for the financial services sector, has gradually but surely now moved above the 200 day EMA and in a formation that looks as though it intends to continue moving further upwards.

So far this week the market has not produced the intraday volatility that I was expecting. The CBOE Volatility (^VIX) has made small moves in recent sessions but interestingly the downward bias in late September appears to have stalled as the index reached the 200 day EMA.


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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LOW  Lowe"s Companies Inc.  

Lowe’s Companies (LOW) has spent several sessions pulling back from the steep drop down on very heavy volume that took place on September 25th. A firm resistance level just above yesterday’s close at the convergence of two moving averages could be the threshold for further selling to emerge.

ESRX  Express Scripts Inc.  

Express Scripts (ESRX) sold off on almost three times the average daily volume yesterday and the chart clearly shows a failure pattern at the $56 level. The MACD chart reveals a negative divergence that could have alerted us to the probable failure to break above the same price level that arrested the advance in early September.

CQB  Chiquita Brands International Inc  

Chiquita Brands (CQB) has returned to a level around $17 from which the stock gapped down in early August.

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