Daily Form September 28, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY SEPTEMBER 28, 2007       06:03 ET

The Nasdaq 100 (^NDX) continues to register intriguing candlestick patterns. The formation yesterday, known as a hanging man, is, in common with other recent patterns that have been recorded, also sometimes associated with topping and double top formations. Trying to pinpoint turning points is always hazardous and the current scepticism, from traders that prefer the short side of the market, about the longevity of the rally could provide a prolongation of this incremental upward progress as the scepticism is accompanied by a lack of conviction that fund managers are ready to liquidate long positions at present.

As already declared I suspect that next week, which also marks the beginning of the last quarter, could be a more lively trading week than the one that draws to a close today. The third quarter as a whole was extraordinarily dramatic but following the turmoil in August most of the trading since mid September has been rather subdued and technical.


The Russell 2000 (^RUT) remains above the 200 day moving average and appears to be poised for a revisit to the previous all time highs that were registered in June and then revisited in July.

My willingness to convert more whole-heartedly to the bullish case would certainly be strengthened if, in addition to the love affair with the large Nasdaq stocks, fund managers show an increasing appetite for the smaller cap issues found in this index.

In line with my comments about the rather polite tone to trading over the last couple of weeks the CBOE Volatility Index (^VIX) has returned to the pre-turmoil breakout levels and in simple numerical terms is less than half of the 35% plus readings seen in mid August. I would expect to see a resumption of market perceptions of higher implied volatility in the coming week.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 28, 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

MSTR  Microstrategy Inc.  

Microstrategy (MSTR) looks to be headed even higher in the intermediate term following breakout action in yesterday’s sessions.



CENX  Century Aluminum Co.  

A similar continuation from a breakout seems likely for Century Aluminum (CENX) and the $60 level would seem to be a feasible target in coming sessions.



DVA  DaVita Inc.  

DaVita (DVA) has struggled to break above $62 with a succession of lower intraday highs and long upper tails. Meanwhile momentum and money flow may have been expended following the recent run up.

Daily Form September 27, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY SEPTEMBER 27, 2007       06:44 ET

Volume remained below par yesterday as most indices made minor gains. The S&P 500 (^SPC) has effectively been stalled over the last five sessions since the celebratory rally that followed the move from the Federal Reserve. The target of the mid July highs would seem be too tempting for traders to resist and I would suspect that from a seasonal point of view - with just two trading days to go before the end of the third quarter - we could well see a move up towards 1550 and possibly beyond.

The divergences that I have been mentioning over the last few sessions, and the increased volume that is to be expected in October, may require fund managers, as we enter the fourth quarter, to re-evaluate their anxious optimism that has characterized the nervously bullish tone to trading since the market moved beyond panic mode in mid August.


In yesterday’s commentary and during my contribution to CNBC’s European Closing Bell yesterday afternoon I discussed the chart that most intrigues me at present which is for the Nasdaq 100 (^NDX). Slightly less intriguing is the chart for the broader Nasdaq Composite (^IXIC) which is revealing several chart formations that are often seen at or near to exhaustion highs.

Spinning top candlesticks and doji star patterns that could become island formations are being registered at the moment and despite my willingness to believe that there is an enormous amount of capital on the sidelines waiting to be deployed I think the divergences and the relatively low volume conditions of late are good reasons to be wary.

We may be close to another tradable correction and that could arise during the course of next week as traders prepare for the employment data that may be discounted before the event as being weaker than market expectations.

If the data proves to be better than expected and consumer related stocks such as the retailers bounce the dissonant action amongst key sectors will be less worrisome.

The exchange traded fund, XLF, whose constituents come from the financial services sector, is presenting a slightly unorthodox bullish flag formation which could be pointing to an impending rally.

My only concern is that the candlestick that I have marked as the flag top has a long tail that coincides exactly with the 200 day EMA. A similar pattern is visible on the KBW Banking Index chart (^BKX) reviewed yesterday. This barrier should be breachable if the underlying market dynamics are to favor a bullish scenario for the remainder of this year.

As expected Gold encountered firm resistance in the vicinity of the $730 level that marked the previous highs from May 2006. Many of the mining stocks declined sharply yesterday and it would not be surprising to see a tradable correction in the precious metal in coming sessions.

However this may turn out to be a short lived and not steep correction and could be the prelude to further strength for the metal and the mining stocks later in the year.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 27, 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

GY  GenCorp Inc.  

GenCorp (GY) was cited in Tuesday’s column as being close to completion of a bullish pullback pattern. The stock provided a decent entry opportunity in Tuesday’s trading and the stock surged by ten percent intraday yesterday despite closing poorly and still resulted in a six percent gain on the day.



NEM  Newmont Mining Corporation  

Amongst the gold mining stocks there were several that tumbled in yesterday’s session including Newmont Mining (NEM) that dropped by almost six percent on very substantial volume. I would expect the slide to continue a little further towards the $43 level but for longer term position players that favour the metal’s prospects this could represent a value area.



JNPR  Juniper Networks Inc.  

Some negative divergences are apparent on the chart for Juniper Networks (JNPR).



FAF  First American Corp.  

Calling bottoms precisely is not something that I recommend but the chart for First American (FAF) has clearly positive MFI divergences and yesterday’s inside session might prove to be an inflection point.