Daily Form December 21, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY DECEMBER 21, 2007       07:43 ET

Recent price congestion was loosened up somewhat yesterday especially with regard to the large Nasdaq stocks and the small and midcap issues. Whereas the S&P 500 only managed to produce a 0.5% gain on the session the Nasdaq 100 (^NDX) steamed ahead with a 1.9% gain (Oracle’s report from Wednesday was undoubtedly a shot in the arm for the tech bulls) and the Russell 2000 (^RUT) registered a healthy 1.5% gain as well as a more than one percent gain for the midcaps.

The S&P 400 Midcap index (^MID) has a well defined triangular formation whose apex coincides with the converged moving averages. The chart reinforces the view that we have been in an extended trading range since the summer correction and suggests that in the intermediate term we should be expecting a significant directional breakout.

The Daily Form commentary will only appear intermittently over the next ten days and I would like to take this opportunity to extend to all readers seasonal best wishes and hope that you enjoy prosperous trading in the New Year.

The Nasdaq 100 (^NDX) was the stand out performer yesterday and the chart reveals a similar triangular pattern to the one we just reviewed but with a more clearly defined upward bias. Could it be that technology will re-assert the leadership required to drive the overall market higher despite the growing prospects of a serious slowdown in those markets with the most debt burdened consumers and deflating real estate markets?

In Friday morning trading across the European markets an impressive upside performance is gathering pace. The chart below shows Germany’s Dax index (^GDAXI) as it stands while this is being written. The index has pierced above the 8000 level and in all likelihood we could be setting up for a testing of the December 12th intraday highs just above 8100. A strong plus for the German economy is the fact that consumers have been much less exposed to the "wealth effect" of puffed up real estate bubbles.

Problems are mounting for the UK economy. Public sector borrowing is way ahead of the government’s forecast, there has been a collapse in commercial property prices that has forced a major investment fund to suspend redemption privileges to investors, and there is the continuing embarrassment for the government of what to do with Northern Rock.

One of the most conspicuous casualties is the pound and the avalanche like fall from its elevated status above $2.10 just a few weeks ago is apparent on the chart for the exchange traded fund, FXB. There is possible support from the 200 day EMA level at $1.98 but a near term target level at the August lows of $1.95 would seem to be the more likely scenario.


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

CTV  Commscope Inc  

Commscope (CTV), featured here yesterday, did manage to pull away from key moving averages and I would favor a continuation move up towards a target of $55.

CPKI  California Pizza Kitchen  

California Pizza Kitchen (CPKI) faces a hurdle at the 50 day EMA but the MACD divergences are supportive and yesterday’s move ahead on above average volume was constructive.

No comments: