Daily Form August 1, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY AUGUST 1, 2007       06:56 ET

The respite from last week’s selling proved to be short lived as the markets turned south again yesterday. The chart that may be most problematic for the bulls is for the Nasdaq 100 (^NDX) which held up fairly well during last week’s slide but which is now exhibiting the trendline violation which is so evident on the charts for the other indices.

The two percent decline outpaced the drops in the other indices and Amazon and Apple (discussed below) were just two of the stocks that contributed to the decline.

Underlining the difficult environment that is now confronting long only fund managers is the surge in the CBOE Volatility index (^VIX) which has now moved above the levels seen during the earlier concerns that beset the credit markets in late February. With American Home Mortgage (AHM) losing 90% of its value in one day and the impending threat of liquidations of distressed mortgage backed securities, the sustained buildup in implied volatility suggests that erratic trading conditions may be with us for a while to come.

The Bombay Sensex index (^BSESN) also succumbed to quite vigorous selling overnight as the index moved down by four percent. Last week an all time high was registered in this barometer market but the possibility of a full blown contagion episode is spooking some macro fund managers to pull back on some of those sectors where the gains have been almost uninterrupted since the March recovery.

The Nikkei 225 took another dive in overnight Asian trading and Wednesday’s close brought the index down by more than two percent and a re-test of the March lows now seems inevitable in coming sessions.


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

ULBI  Ultralife Batteries Inc.  

Our suggestion in Monday’s commentary that Ultralife Batteries (ULBI) looks constructive on both the weekly and daily charts bore some fruit in yesterday’s trading as the stock moved up more than three percent in very difficult market condtions.

AAPL  Apple Computer Inc.  

Apple (AAPL) was a principal casualty yesterday moving down almost seven percent. The divergences on the MACD and MFI chart are pointing to the fact that despite a lot of upbeat statements from analysts and fund managers that bargains abound, many institutions are liquidating positions in the better performing stocks.