Daily Form December 3, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY DECEMBER 3, 2007       06:06 ET

A key level on the S&P 500 to be watching this week lies about forty points above the index’s close from last Friday. Bullish traders will want to challenge resistance near to 1520 which initially requires a break above the 50 day EMA hurdle and then burrowing through general chart congestion and a descending trend line through the lows since the October 9th high.

Of the six hundred most liquid equities in the US market that I scan and analyze in depth on a daily basis, almost fifty percent of them finished last Friday more than five percent higher than where they finished the previous Friday. Only ten of the six hundred concluded with a five percent loss for the week. It was an impressive turnaround that was triggered by a massive short covering of the banks and other financials but there was also evidence of new institutional buying as many managers scrambled not to get left behind in what has so far been a difficult year for long only funds. The realization appears to be dawning for many asset managers that the extreme pessimism reflected in the large short bias since mid October has, at least until the next FOMC meeting, run its course.

The S&P 400 Midcap Index (^MID) faces a similar challenge to its larger cap cousin and if the bulls are to sustain the dramatic turnaround the 885-90 area will need to be breached in coming sessions.

Can the bulls really take control and push us to new multi-year highs before the end of this year? Just to be asking such a question seems quite remarkable but I would suggest that if we could see a successful recovery above the 800 area on the Russell 2000 index (^RUT) - a level which has proven to be formidable resistance for the small caps since mid October - then positive seasonal factors and ongoing accommodative Fedspeak could lead to a complete capitulation by short sellers as the year winds down. If such a scenario plays out there is an increased capacity for severe dissonance and disappointment in early 2008.

XLF, the sector fund for the financial services made good progress last week from an oversold condition. The fund broke above the 20 day EMA but now has to confront the trendline through the recent highs which closely aligns itself with the 50 day EMA.

The sector fund for oil and gas exploration (XOP) shows a tiered bearish flag formation and there is clear overhead resistance where both of the short term moving averages intersect.


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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QLGC  QLogic Corporation  

I would be looking for a good entry point on the short side for QLogic (QLGC), which closed last week below the 20 and 50 day EMA’s and where the pattern since early November resembles a bearish descending wedge formation.

JBLU  JetBlue Airways Corporation  

On the long side I shall be watching some of the airline stocks that appear to be emerging from basing patterns. JetBlue Airways (JBLU) and Southwest Airlines (LUV) both have constructive looking chart patterns suggesting that they want to move higher this week.

IDT  Integrated Device Technology Inc.  

IDT Corporation (IDT) has entered a very constricted range in which just one dollar separates the upper and lower volatility (Bollinger) bands. There is some suggestion from the MACD and money flow charts that a break upwards could be quite explosive.

CCU  Clear Channel Communications  

Clear Channel (CCU) saw two selling surges in early and mid November and since then has pulled back to meet resistance at the $36 level which is where the 200 and 50 day EMA’s have converged. The long tailed hanging man candlestick registered last Friday suggests that at least a temporary correction could be imminent.

BPHX  BluePhoenix Solutions Ltd  

Blue Phoenix (BPHX) rose above key moving averages on heavy volume last week and now appears to be headed back towards recent highs above $21.

APA  Apache Corporation  

The chart for Apache Corporation (APA) echoes the formation that was seen on the XOP sector fund that was reviewed above.

SYNA  Synaptics Incorporated  

Synaptics (SYNA) has had some negative divergences on its chart for some time but the most recent double top at the $60 level coincides with a notably lower high on the MACD chart segment.

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