Daily Form November 8, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY NOVEMBER 8, 2007       06:58 ET

The Russell 2000 (^RUT) came down harder than the other indices yesterday but did not match the four percent decline from last Thursday. The 200 day EMA has now been decisively breached and as the chart highlights Tuesday’s rally notably failed to lift the index back above this key moving average and the 800 level. Sentiment is very negative, perhaps too much so at present, and I would hesitate to get too confident on the short side, but it would not be alarmist to suggest that if we were to break below the mid August lows on this index we could well see an avalanche of institutional selling.

One of the few charts that moved up yesterday was the CBOE Volatility index (^VIX) which climbed by 23% and puts the previous elevated levels from August back in the framework. I would expect today’s session to be quite erratic and for that reason I shall be on the sidelines.

I discussed the chart for the Nikkei 225 (^N225) during my contribution to CNBC’s European Closing Bell yesterday and made the point that this is one of the most bearish in appearance of all the major global indices. The sell-off in the US added further downward pressure in overnight trading Thursday and the index now looks to be headed towards a testing of the mid August low. In line with the concerns expressed regarding the Russell 2000 (^RUT) if the August 17th closing low of 15273 does not hold for the Japanese index the next layer of support is in the region of 14500 which was last seen in June/July of 2006.


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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CMI  Cummins Inc.  

As mentioned I am wary of relying too much today on the charts following yesterday’s very difficult session but I shall reiterate the point that I made earlier this week that Cummins (CMI) looks vulnerable close to the $125 level where it closed yesterday.

GRMN  Garmin Ltd.  

Readers will recall that I have been following the chart for Garmin (GRMN) quite closely not only because of its interesting technical characteristics but because of the bidding war with TomTom for TeleAtlas. The board for the mapmaker has today recommended to shareholders to accept the revised TomTom bid which will increase the commercial difficulties for Garmin.

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