Daily Form September 18, 2007

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TUESDAY SEPTEMBER 18, 2007       05:58 ET

Later this afternoon we shall find out the piece of information that traders have been focused on for the last few weeks. Ever since the asset backed commercial paper and inter-bank market seized up in early August there has been endless debate about the need for a major signal from the Federal Reserve that a credit crunch will not precipitate a significant downturn in economic activity. The ease in the discount rate by fifty basis points was seen as a partial acknowledgement of the gravity of the situation but calls for reducing the fed funds rate by a similar amount have been persistent ever since.

The markets spent most of yesterday biding their time before the announcement and there were a plethora of inside day and tiny intraday range patterns especially amongst the banks and stocks in the financial services.

The Russell 2000 (^RUT) has effectively been in suspended animation for several sessions and I shall be watching this index keenly over the next few sessions as a way of assessing the market’s perception of the implications of the Fed’s move in regard to the broader economy. As discussed on many recent occasions the index faces a formidable challenge at the 800 level and if the bulls can penetrate that level convincingly in coming days then the previous mid-July highs would appear to be back in play. While that possibility certainly cannot be ruled out there is a strong possibility that the market gets what it wants - a fifty point easing - and then has to live with the fact that the problems in the financial economy involve more complex structural issues than can be addressed with a relatively blunt instrument such as the fed funds rate.


Another index which has moved into the apex of a distinct triangular formation is for the banking sector (^BKX). As with the Russell 2000 this index faces a real hurdle at its 200 day EMA level, but as it has further to go to take on this hurdle, it also faces resistance at the 50 day EMA level in the vicinity of 108 as well.

Could it be that the market has digested all of the negatives for the homebuilding sector? The chart for the ETF for the sector, XHB, shows the relentless decline over the course of the last few months in which the sector has followed the 20 day EMA all the way down. But there are some positive divergences emerging in the MACD and MFI charts and it may be that the recognition that the FOMC is officially "worried about" a slowdown is the news that could create some buying and short covering in the sector.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY SEPTEMBER 18, 2007



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

HOV  Hovnanian Enterprises  

The chart for Hovnanian (HOV) echoes the comments made for the homebuilding sector in general. The stock appears to have been sold down to levels where the risk/reward ratio favors some kind of bounce.



FRX  Forest Laboratories Inc.  

The chart for Forest Labs (FRX) has characteristics of a basing pattern with a pullback from an early September attempt to rally that may have run its course.



LEH  Lehman Brothers Holdings Inc.  

Lehman Brothers (LEH) appears to have broken above the descending trendline that follows the 20 day EMA (blue line on the chart).



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Daily Form September 17, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY SEPTEMBER 17, 2007       06:48 ET

In Friday’s trading the S&P 500 (^SPC) explored lower prices but came to rest more or less where it had started the session. There may be a continuation of this theme in today’s trading as the markets brace themselves for tomorrow’s FOMC decision.

As this is being written the European markets are still digesting the fall out from the Bank of England’s bail out of Northern Rock which received an enormous amount of coverage in the UK press and television over the weekend. Live television coverage of irate customers lined up outside branches of the bank are not the kind of thing that central bankers and politicians want to see, and all of the upbeat talk from commentators about how the "fundamentals" of the bank are totally sound seems just to be stretching the credibility gap even further.

Whether this will be a catalyst for further financial contagion remains to be seen.


The gold and silver index (^XAU) faces a real challenge as it has returned to the level seen in mid July, and, with the metal itself possibly poised to test the May 2006 levels, it will be useful to keep the gold mining stocks on the radar screen this week. As just commented with talk about a run on banks in the popular press this would seem to be supportive of the safe haven thesis but, alas, the metal has disappointed several times before in this context.

One sector which looks constructive and should benefit from the likely FOMC easing is for the utilities where the declining competition from Treasury yields should provide a strong counter argument to concerns about a slowing economy.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 17, 2007



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

AU  AngloGold Ashanti Limited (ADR)  

AngloGold (AU) registered a shooting star/spinning top candlestick in Friday’s trading which points to the fact that it is meeting overhead resistance at the previous recent high from mid July. A scenario that I favor is that we may see a retreat in the mining stocks and the metal in the short term but a recovery rally back to the mid July and current levels again in the intermediate term. I would not be surprised to see signs of an upward breakout for both the mining stocks and the metal towards the end of the year.



KR  The Kroger Co.  

Kroger (KR) moved above all three moving averages on above average volume in Friday’s trading and is now poised for a possible move up to the $29 level, but it has to surmount a declining trend line through the highs that stretch back to early June.



INTC  Intel Corporation  

Intel Corporation (INTC) has been acting poorly in recent sessions and I shall be watching this week to see whether the erosion continues or whether the slide attracts the growing legion of asset managers singing the praises of the technology stocks.



YHOO  Yahoo Inc.  

Last week’s recommendation on a long position for Yahoo (YHOO) paid off in Friday’s session and the chart pattern suggests that further gains may lie ahead.



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