Daily Form October 2, 2007

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Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY OCTOBER 2, 2007       05:48 ET

Exuberance appears to be increasing as the DJIA broke above its previous closing high yesterday and recorded an almost 200 point gain. Both of the widely followed Nasdaq indices, ^NDX and ^IXIC, also registered multi-year highs while the S&P 500 (^SPC) stopped just short of its mid July high.

The merrymaking has also continued in some Asian markets with Hong Kong’s Hang Seng Index moving up almost 1000 points to reach a new closing high that lies about 40% percent above the intraday lows recorded just six weeks ago.

There is no denying that sentiment is profoundly bullish as all news at present is perceived as being supportive of further easing by the Fed and evidence that the worst of the credit market turmoil is behind us. Just how fragile this buoyancy is remains to be seen but in the current market environment one needs to be cautious about taking on too much long exposure and yet there are very few setups in scans of individual stocks that are obvious shorts.


Large write-downs by Citigroup(C) and UBS failed to dent sentiment in the financial sector but both of the major indices that I track in this arena ^BKX and ^XBD are still below their respective 200 day EMA’s. The broker/dealer index closed almost exactly at the 200 day EMA level and as reviewed below some of the investment banks, such as Goldman Sachs (GS) are close to completing a V shaped recovery off the August lows, while others such as Merrill Lynch (MER) are still closer to their August lows than they are to their own 200 day EMA.

Clearly the investment banks are on different trajectories at present and, uncharacteristically, the sector is not performing in a uniform and coherent fashion.

One sector chart that captured my attention is for the consumer staples stocks, XLP, which registered a marginal loss with a doji star formation on very heavy volume. This could represent an inflection point as capital that had been allocated defensively to this sector over the last few weeks is being tempted away into more dynamic and high-flying sectors.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 2, 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

MAN  Manpower Inc.  

Our comment yesterday morning that the chart for Manpower (MAN) was revealing a basing pattern with positive divergences on both the MACD and MFI chart segments proved to be timely with a good entry opportunity and a four percent gain for the day.



GRMN  Garmin Ltd.  

Nokia’s decision to acquire Navteq (NVT) for $8 bn did not sit well with some analysts and shareholders of sat nav manufacturer Garmin (GRMN). The acquisition of the electronic map maker will almost certainly lead to increased costs for Garmin and the entry of the mobile handset powerhouse into the geo positioning market place provides another competitive dynamic in what is becoming a very rapidly growing market.

Interestingly Europe’s major sat-nav player TomTom NV (which is traded on the Amsterdam exchange) and which is the market leader throughout Europe recently acquired one of the other major map suppliers TeleAtlas. TomTom is also ramping up its operations in North America. Garmin is now facing a clear challenge in its strategic marketing and the chart suggests that a move back towards the $90 level could be seen in the intermediate term.



GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) has made a remarkable recovery from peeking below $160 in mid August to now being within points of its mid July highs. This is not the first time that this stock has shown extraordinary recovery capabilities and probably it is not the last time either.

Daily Form October 1, 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 OCTOBER 1, 2007       05:10 ET

The third quarter closed with a relatively quiet session with subdued volume and small intraday ranges registered for most indices. The S&P 500 remains tantalizingly close to the mid July highs and it must be assumed that the tempation to test this level will prove to be too much to resist in coming sessions. However,the week ahead will almost certainly see an increase in the volatility that is often seen during the month of October as the market faces a potentially disruptive event when the employment data is released on Friday. Traders will be looking to discount this event during the course of the week, and as well there is the likelihood that Friday itself could see significant intraday moves.

Trading during the second half of September saw a diminution in volatility but one of the indicators that I follow, which measures the correlations between market sectors, is indicating that we are still within an episode of unusually enhanced correlated movements between disparate sectors. This suggests that the turbulent conditions from August, whilst they have abated since the recent Fed easing decision, are still in evidence beneath the surface.

There is a new article regarding the correlation of disparate market sectors at the tradewithform website


Another index that I will be monitoring in the coming week is the Dow Jones Utilities index (^DJU) which performed poorly in Friday’s session. In a slowing economy with a supposition that there will be declining long term interest rates, one would expect this sector to be a defensive play for asset managers attracted to the attractive income from these securities with reliable dividends. The activity in the gold market which saw a multi year high for the precious metal at the end of last week could be a factor that is unnerving some asset managers as to how reliable the prospects are for declining yields at the long end of the Treasury Bond spectrum.

COMEX Gold futures for December delivery jumped more than $10, or 1.5%, to end the quarter at $750 an ounce on the NYMEX. As the weekly chart below for the exchange traded fund, GLD, which tracks the precious metal, shows the metal is now trading above the May 2006 highs and at levels not seen for more than twenty seven years. The record intraday all-time high for a benchmark gold futures contract on Nymex stands at $875 from Jan. 21, 1980.

Continued weakness of the dollar, booming commodity prices and a Federal Reserve that may be trapped into a policy of easing, raises the risk that the inflation genie may not only be out of the bottle but there is little that can be done to get it back in. Monitoring the direction of the gold market including the mining stocks, the utilities and the yields on the 30 year bond would also be advisable as a useful gauge as to how much volatility could become a factor in the coming month.

In Friday’s trading the dollar continued its downward trajectory against most currencies and especially the euro. The currency for the EU made a succession of historic highs last week and the selling pressure seems to be relentless as global asset managers that want exposure to US capital markets also want to hedge their exposure to a currency which seems increasingly to be taking on the characteristics of a one way bet - downwards.

Although the dollar has been weaker against the Japanese yen, against a basket of major global currencies, the dollar is at historically low levels and this seems to have been accepted stoically by asset allocators as the price to be paid for rescuing the US economy from a drastic slowdown. As the previous discussion suggests the largest impact from the dollar’s decline may be felt by US consumers in the form of higher final product prices as cost inflation will be most acutely felt in an economy where the currency’s purchasing power is diminishing the most.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY OCTOBER 1, 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

MAN  Manpower Inc.  

The chart for Manpower (MAN) reveals a basing pattern with positive divergences on both the MACD and MFI chart segments.



WDC  Western Digital Corp.  

Western Digital (WDC) is showing some evidence of declining momentum and I shall be watching this for further signs of corrective price action.



MO  Altria Group Inc.  

The pattern for Altria (MO) is quite intriguing with a cup and handle pattern that has formed as the stock is attempting to break above the $70 level. A clear break through that barrier could see the stock ready to mount an assault on mid July all time historic highs.



BOBJ  Business Objects Inc  

Business Objects (BOBJ) peeked and closed above the 200 day EMA on heavy volume in Friday’s trading.



KR  The Kroger Co.  

Kroger (KR) has a bull flag formation with an exemplary pullback and volume pattern. One further test of the lower bounds of the pullback channel may be on the cards but the trade has a favorable reward/risk ratio.