Daily Form November 28, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY NOVEMBER 28, 2007       06:25 ET

It was a roller coaster ride for US equity traders yesterday as the major indices zigged and zagged through another manic depressive day of trading. Lots of analysts and commentators tried to make sense of the capital injection by the Abu Dhabi sovereign wealth fund into Citigroup. Some rejoiced that Citigroup has had no trouble in raising new capital to preserve its liquidity and protect its dividend while others queried why the investment fund had to be rewarded with such generous provisions. The preferred offering included not only favorable equity conversion privileges but an 11% coupon and also protection to the fund from any dividend cut.

Just as a Saudi prince came to the rescue of Citibank in the early 90’s another group of Arab investors have now taken the largest stake in the enlarged bank/financial services conglomerate. What better way to illustrate the interdependency of major players in the global economy - petrodollars are recycled back into the largest US based banking operation and perhaps the global economy will be insulated from ever more problematic developments in the financial system.

An excellent article by Gillian Tett in today’s Financial TImes suggests that there are deep seated issues that will need to be confronted by regulators and central bankers before today’s banking system is able to comprehend and absorb all of the entanglements that are currently unravelling.

The Nasdaq Composite (^IXIC) registered an inside day with a close just at the 200 day EMA and I confess to being somewhat bemused by the current market environment. I have hardly any appetite on the long side of the market but sense that there are too many short sellers that are trying to precipitate the break below key support levels and that they will anxiously run to cover whenever there is some vaguely good news that spooks them.


A week ago I was interviewed on CNBC Europe and stressed that the 820 level on the S&P 400 Midcap index was a key support level as it represented a conjunction of key trendlines including a probable neckline for an extended head and shoulders pattern. As the chart reveals the market seems still to be "testing" this key level and while the outcome remains uncertain I shall be restrained in my own trading and be making relatively few specific suggestions in this commentary.

In Monday’s commentary I mentioned the growing divergences in the ETF for US West Texas Intermediate crude and as the chart reveals the fund gapped down yesterday and may seek out the $70 level before meaningful support kicks in.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 28, 2007



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

CMED  China Medical Technologies Inc.  

CMED which I recommended recently on the short side has delivered substantial profits since completion of the bearish pullback pattern that is highlighted on the chart.



MBI  MBIA Inc.  

If MBIA (MBI) is registering a double bottom this could be a promising sign for those looking for a tradable upswing in the financials but one needs to be just as cautious here as with stocks in the homebuilding sector which continue to send out confusing signals that turn out to be false bottoms.



WFC  Wells Fargo and Company  

Wells Fargo (WFC) may sink down to new closing lows as it revealed significant write-offs on its mortgage portfolio after the market closed yesterday. In after hours trading the stock was down about 5% and what is most unsettling about the announcement is that much of the asset deterioration was not specifically in the sub prime sector per se. The bank’s announcement underlines the malaise that is now infecting all classes of residential real estate across the nation and which is leading a growing number of "experts" who, in September could see no risks of a recession, are now confidently predicting one.

Daily Form November 27, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY NOVEMBER 27, 2007       06:55 ET

The feel good rally predicated on last weekend’s better retail activity than expected soon fizzled in yesterday’s trading and structured financial product woes came to the fore again. The big casualties were the homebuilders and many mortgage related financials with Freddie Mac (FRE) and Fannie Mae (FNM) suffering ignominiously again.

News that HSBC, the UK based global bank, is abandoning its SIV shenanigans and taking all of the assets and obligations on to its balance sheet will add further pressure to Citigroup and JP Morgan who have still to get their super SIV scheme off the ground. The injection of $7.5 billion in new capital to Citigroup by a sovereign wealth find from Abu Dhabi could just have been coincidental timing but once again there is a slightly scary sense that the conceptual edifices created by financial engineering are groaning again in the wake of further aftershocks triggered by the CDO meltdown.

One of the more disconcerting developments was the performance of the Russell 2000 (^RUT) which broke below the mid August low and closed at its lowest level in over a year.


The S&P 500 (^SPC) came within a whisker of the mid August closing low and my suspicion is that the intraday low of August 16th of 1370 will be on the radar screen in the next few sessions. A failure to hold at this level would almost certainly trigger panic institutional liquidations and we could see even more money move into the Treasury complex which, contrary to our call yesterday, proceeded to knock down another sixteen basis points to close decisively below the 4% level.

In overnight trading the Nikkei managed to mount a late rally to erase a loss which would have seen it register another multi-period low but the Hang Seng Index (^HSI) was unable to hold on to most of Monday’s gains which had enabled the index to regain the 200 day EMA, and the index gave back 1.5%.

The Shanghai index (^SSEC) also dropped a further two percent and the index is now closing in on a twenty percent decline since its October 16th historic high.

As a reminder to readers, but not specifically with any short recommendation at present, there is a way to gain exposure to Chinese stocks generally through the exchange traded fund FXI.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 27, 2007



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

SVU  Supervalu Inc.  

Super Value (SVU) peeked above a line of resistance on heavy volume and the chart pattern suggests that a breakout is imminent.



LAZ  Lazard Freres  

Lazard (LAZ) ran into resistance at the intersection of all three moving averages.



CG  Loews Carolina Group  

Loews Carolina (CG) has a cluster of long upper shadows and yesterday’s rather striking shooting star, as well as the MACD negative divergences which are quite evident, looks promising on the short side.

Daily Form November 26, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY NOVEMBER 26, 2007       06:39 ET

Quiet trading at the end of last week allowed a recovery from the rather ominous looking charts that were apparent at the conclusion to last Wednesday’s trading. Many indices peered over the abyss during last Wednesday’s session but managed to pull back towards the close and remained above key support levels.

The S&P 400 Midcap index (^MID) retreated to the 820 level as discussed in our last commentary but it is possible that the impending holiday on Thursday acted as buffer that allowed traders to postpone a thorough testing of the mid August lows.

Friday’s session saw a bounce which may have further to run as sentiment will have been given a boost from positive retail numbers. However, with conditions in the money markets still posing real liquidity problems for many, I would be surprised not to see the 820 level tested again more robustly in coming sessions.


The Nasdaq Composite (^IXIC) transgressed the 200 day EMA last Wednesday but then returned above it in Friday’s extremely low volume session.

The yield on the ten year note has declined by 125 basis points since June resulting from a growing consensus that the direction of short term rates is down and decisions by asset allocators to seek the safety of Treasuries in preference to their aversion to many other financial assets. The risk/reward ratio now favors short sellers of Treasuries especially as analysts and commentators celebrate the better than expected news about the vitality of the US consumer at the beginning of the peak shopping period.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 26, 2007



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

MHP  The McGraw-Hill Companies Inc.  

McGraw Hill (MHP) has quite noticeable positive money flow divergences.



SLT  Sterlite Industries India Ltd.  

Sterlite (SLT) reveals successively lower highs



USO    

The exchange traded fund, US Oil (USO) that tracks the performance of West Texas Intermediate crude is revealing some momentum and money flow divergences.

Daily Form November 21, 2007

CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC"s EUROPEAN CLOSING BELL TODAY

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY NOVEMBER 21, 2007       06:41 ET

The market produced a modest relief rally yesterday but it was far from the uniform upward trend day that those of a bullish persuasion can derive any comfort from. Traders in the pits especially, but even those watching screens yesterday, would have felt as churned and disoriented as someone who had spent the day on a roller-coaster ride at Disneyland.

Despite the mild rally in the large caps there were some alarming developments yesterday which as the lawyers like to say, included but were not limited to the 25% plus falls in both Freddie Mac (FRE) and Fannie Mae (FNM). The euro established another new high against the dollar as it closed above 1.48, gold rebounded strongly and crude prices moved up to within a whisker of $100. This is not a market for the faint-hearted and probably favors those traders with short memories as those with a longer view may be paralysed into inaction as they try to fight off the nagging mantra - Crisis, what crisis?

The Nasdaq Composite (^IXIC) spent most of the session exploring lows not seen since early September but then rallied into the close to register a spinning top candlestick which straddles the 200 day EMA. This pattern suggests that we are at a key inflection point but with trading likely to be subdued for the rest of the week the resolution may have to wait until next week. What might surprise today however is the fact that with so many troubling possibilities many traders may want to exit outstanding positions before the holiday. This could tilt the balance again today towards another roller coaster ride which heightens the risk of a nasty derailment.

I shall not publish again until Monday and would like to wish all of my North American readers a Happy Thanksgiving holiday.


In Monday’s commentary the S&P 400 Midcap index (^MID) was featured and I commented that a decisive breakdown below the 820 level would be a signal of a major trend change. I did not discuss the larger pattern in that commentary but decided to today, after receiving feedback from readers of the newsletter who are pointing to the head and shoulders pattern that is revealed on the daily chart for this index in 2007 (which is also echoed on many other indices).

Construing the chart formation in this fashion also suggests that the neckline runs just above the 820 level. The pattern is not the easiest to classify and I always qualify my judgment about the reliability of such an amorphous formation. For those that do embrace the interpretation, a clear violation of the 820 neckline level would take us down by the distance from the neckline to the top of the head. This represents about 100 points suggesting that a bearish turn of events could take us down quickly to the 720 level on this index. Revealingly this would bring us back to the levels seen in the June/July 2006 correction.

In Asian trading overnight the gains that were made in Tuesday’s trading were almost given back and both the Nikkei 225 (^N225) and the Hang Seng (^HSI) ended up with inside day patterns. The failure to hold on to Tuesday’s rally is a clear negative for both indices and the unwillingness to move outside the range achieved in Tuesday’s session underscores the suspicion that traders in these markets are anxiously watching and waiting for clear directional cues from the US market.

Key weekly trendlines have now been violated on the Nikkei 225 (^N225) and at present the index is hovering just above its 200 week EMA. From a technical perspective a weekly close below this level - approximately 14800 - would trigger further alarm signals.

The Hang Seng index (^HSI) also recorded an inside day and to play loosely with some metaphors it may be time to call in the snow ploughs and barriers to try to hold back the avalanche.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 21, 2007



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

XLU    

Scanning sector charts there is very little that looks constructive on the long side and while most charts are looking bearish I am hesitant to take on additional exposure to current short positions this side of the Thanksgiving break.

The utilities sector fund, XLU, has a positive price pattern and the underlying money flow looks as though the sector is providing a haven to some footloose capital that is being switched out of many other market sectors.



FNM  Fannie Mae  

Not much to say about the next three charts. Fannie Mae (FNM) is in free fall and, as a very widely owned stock by institutions, there have to be managers of many large pension funds, mutual funds and insurance companies that are looking at such price action with outright alarm.



FRE  Freddie Mac  

Freddie Mac (FRE) is also very widely held by many long term investors and funds and a chart like the one below is likely to have holders of the stock reaching for the Maalox to aid digestion of tomorrow’s turkey.



MBI  MBIA Inc.  

MBIA (MBI) is trying to stablise after its recent plunge but holders of this credit insurer hoping to take comfort that a basing pattern is under way cannot take comfort from the previous two charts.

The preceding three charts are not the foundation stones that makes one comfortable about current risk management practices and question the reliability of the assurances provided by those that supposedly are providing underwriting guarantees.

Daily Form November 20, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY NOVEMBER 20, 2007       06:47 ET

The holiday shortened week began with another broad market sell-off which was partly inspired by a Goldman Sachs analyst downgrading Citigroup (C) to a sell. The S&P 500 (^SPC) closed at its lowest level since August 28th and in so doing took out the previous Monday’s low. By contrast the Nasdaq Composite (^IXIC) managed a close just above the corresponding close of the previous week. The index came to rest at the 200 day EMA and an area of chart support.

Action in overseas markets may inspire a short covering rally in today’s session and I could envisage another strong upward trend day as we saw exactly one week ago. The Nikkei 225 in Japan (^N225) suffered through most of today’s session but in afternoon trading the index suddenly found a burst of buying support which rescued the index from a new 52 week low below 15000. A similar late burst of buying brought the Hang Seng (^HSI) back to close with a more than one percent gain.

It is worth commenting on the sorry performance of the UK’s FTSE in yesterday’s trading as it outstripped all global indices on the downside to register a 2.7% loss. The lamentable handling of the crisis facing the bank by the UK government which has exposed the UK taxpayer to a theoretical liability in excess of $80 billion weighed heavily on sentiment. It has helped to push the Libor rate on sterling up to spreads above the base rate not seen since the summer. Shares in Northern Rock continue to plunge and have had to be suspended periodically in today’s trading and the plight of the bank was not helped when news also emerged this morning that another mortage originator, Paragon is becoming dysfunctional.

Despite a temporary respite in broad market selling, which is enabling the FTSE to register small gains as this is being written, the underlying disarray in the financial sector will add further pressure on the recalcitrant governor of the Bank of England to be more accommodating on interest rates. Especially in relation to the euro, this cannot be constructive for the sterling cross-rates.


Last week I mentioned the deterioration in the technical conditon of the sector fund, XLB, which comprises many suppliers of industrial materials. The fund dropped a further 2.6% yesterday and closed below the 200 day EMA.

Just when it seemed that sentiment for the banking sector could not get a lot worse the sell recommendation on Citigroup along with concerns that the guarantors of structured financial products such as MBIA are facing an imminent credit downgrade pushed the banking index to another new multi-year low in trading yesterday.

The BKX index is at levels not seen since 2003 and continues to undermine the bullish outlook for equities. It is naive to believe that the so called real economy which focuses on the global trading in physical goods and manufacturing can stand aloof from the turmoil facing the financial economy.

Anecdotally however, one has the sense that too many hedge funds have succumbed to the temptation to settle too comfortably into a dire outlook. This creates the preconditions for another dramatic short squeeze induced rally and its imminent likelihood will be strengthened by the desire for a "feel-good" rally before the festivities later in the week.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 20, 2007



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

BW  Brush Engineered Materials Inc.  

Brush Engineered Materials (BW), featured here recently, has an interesting pattern that shows a bearish flag formation that morphed into a descending wedge. The stock delivered an almost six percent return on the short side in yesterday’s session. Also delivering a nice gain on the short side was Las Vegas Sands (LVS) cited here yesterday and which could have returned 7% on the day.



SPC  Spectrum Brands Inc  

Spectrum Brands (SPC) looked as though it was heading towards $6 a week ago and the pullback since has been on subdued volume. If the overall market cooperates the $6 target could be on the cards again.



EXM  Excel Maritime  

Investors in Excel Maritime (EXM) have been on a very exciting ride since early September. The roller coaster moved relentlessly upwards during October but the stock has now been cut in half in the last month and has returned to the July levels that coincide with the 200 day EMA.

Daily Form November 19, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY NOVEMBER 19, 2007       06:53 ET

The weekly chart for the S&P 400 Midcap index (^MID) highlights the gray area currently occupied by many of the market’s typical and less discussed stocks. These are also the securities that are unlikely to feature prominently in daily gyrations created by omnipresent long/short trading strategies.

In harmony also with the Russell 1000 (^RUI), the midcap index has entered a transition zone between the two pivotal lines that have been drawn on the chart below.

The index has broken below the 50 week EMA and the 870 level which marked the April 2007 breakout level. After the August sell off the index made a valiant effort to reach back towards new highs but failed before regaining the 926 level setting up the rather ominous lower high in early October. The index now sits at a fairly critical level where, if there is a concerted effort by fund managers and trading desks to push the market higher as we move into the "holiday" season, the market internals could entice panic buying as fund managers do not want to miss out on a year end rally.

With news flow running very negatively and many proprietary trading desks positioned to make money on the short side we cannot rule out a strong contrarian move that could, at least temporarily, revive enthusiasm for putting money to work on the long side. If, however, the Midcap index breaks below the 820 level, which is the lower line on the chart and represents the early 2007 push above previous chart resistance, this would act as a clear indication, for me at least, that the positive momentum that has propelled the bull market since 2003 has been fully spent.


If the most ardent of the bulls who maintain that we will see new highs on the major indices before the end of this year are to be taken seriously, we would have to see a re-assertion of the leadership from the large tech stocks. To remove my doubts about this proposition the sector fund, XLK, which is comprised of some of the most notable technology companies would have to move above the $27 level which coincides with the price breakout which propelled the sector in late September above the preceding high in July.

The Hang Seng index (^HSI) has now registered three closes below the 50 day EMA and at its lowest level in six weeks. The conclusion of trading in Monday’s session saw a further modest loss of 0.6% but the intraday low managed to remain above that seen in last Tuesday’s session. The index is hanging on by its fingertips and I would suggest that despite all of the talk about "de-coupling", the large funds, that are very flush with Asian equities at present, are watching the US equity market very carefully for directional cues.

In addition to the XLK fund I would suggest that the semiconductors have reached a level where they should show some signs of recovery if fund managers still see merit in the sector and want to take advantage of a retreat to a value area that revealed itself throughout the earlier part of this year

TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 19, 2007



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

HAS  Hasbro Inc.  

Hasbro (HAS) is close to an area of strong overhead resistance.



LVS  Las Vegas Sands Corp  

Las Vegas Sands (LVS) slumped in early November on very heavy volume and is about to encounter overhead resistance from two key moving averages.

Daily Form November 16, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY NOVEMBER 16, 2007       03:12 ET

The question that I would expect to linger beyond today’s session is whether the markets are simply performing a re-test of last Thursday’s low or are gearing up for a new substantial leg down. As always I shall be monitoring the price action on the Russell 2000 index (^RUT) which as far as the pattern following yesterday’s trading is concerned leaves us guessing as to the possible near term direction. The pattern still could be seen as one of slightly higher intraday lows that may suggest that a retest may already have been made but stepping back to review the bigger picture the chart pattern looks troublesome for the bulls.


Yields on treasury notes are continuing to move lower and the floor around 4.4% has been decidedly broken and we should now expect further moves down to the next potential floor at 4%. There is no doubt that many traders are now becoming convinced about the likelihood of a serious slowing of economic vitality in the global economy.

On this theme yesterday’s discussion about the weakness in the industrial materials sector and the vulnerability of the sector fund XLB proved to be timely as the fund dropped down by 2.2% on substantially increased volume.

More evidence to keep us guessing about the retest of recent lows is to be found on the Nikkei 225 index (^N225) which closed Friday’s session just above Tuesday’s low and there is at least the suggestion of slightly higher intraday lows. Having said that the pattern looks as though traders are waiting for further cues from action in the US today and it must be said that the overall formation hardly looks inspiring for the bullish case.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 16, 2007



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

XLE    

The energy sector fund, XLE, reveals very noticeable negative divergences in momentum and the 200 day EMA seems like a probable intermediate term target.



FNM  Fannie Mae  

The weekly chart for Fannie Mae (FNM) shows that after yesterday’s ten percent fall there will need to be a test of the October 2005 low.



BEN  Franklin Resources  

We noted yesterday that asset management company Franklin Resources (BEN) faced a strong hurdle at the convergence of all three moving averages. The stock sold off by almost five percent on twice the average daily volume and may need to probe for meaningful support at lower price levels.



BAC  Bank of America Corporation  

Returning to the theme of whether the most recent price action is just the market going through the motions of a re-test of last week’s low or something more serious, the chart for Bank of America (BAC) could be offering a more encouraging reading for the bulls.

Daily Form November 15, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY NOVEMBER 15, 2007       06:12 ET

Equity markets failed to follow through after Tuesday’s strong rally and the S&P 500 (^SPC) fell back below the 200 day EMA. Moreover the volume on the SPY proxy was notably higher than that achieved in Tuesday’s almost 3% rally. This lends supporting evidence to the view that much of what was seen on Tuesday was short covering by hedge funds and trading desks rather than new institutional buying.

One of the more surprising developments yesterday was the bearish comments from the Governor of the Bank of England that global share prices were out of alignment with deteriorating economic and financial conditions. Central bankers usually do not express such honest views about the state of the equity markets and one of the consequences of his downbeat assessment, that was especially targeted at the UK economy, was a slide of the pound sterling especially against the euro. This cross rate could have further to slide and the rate of sterling against the dollar may also be topping out.


The Nasdaq Composite (^IXIC) gave back almost one third of Tuesday’s gains and the index still faces the resistance of the 50 day EMA.

The sector fund for raw materials, XLB, is displaying some negative divergences and the performance of some of the industrial materials stocks as well as the shipping stocks suggests that fund managers are starting to take the possibility of a global economic slowdown more seriously.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY NOVEMBER 15, 2007



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

SGP  Schering-Plough Corp.  

Schering Plough (SGP) appears to be in the midst of forming a bearish descending wedge pattern.



BEN  Franklin Resources  

Asset management company Franklin Resources (BEN) faces quite a strong hurdle as all three moving averages lie just above yesterday’s close.



KG  King Pharmaceuticals  

The chart for King Pharmaceuticals (KG) reveals a bullish flag pattern.



CMED  China Medical Technologies Inc.  

China Medical Technologies (CMED) could struggle to make much further upward progress following the high volume sell off on November 8th.