Daily Form November 27, 2007

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.


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.

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