Daily Form October 30, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY OCTOBER 30, 2007       05:59 ET

After several sessions with large intraday swings the Nasdaq 100 (^NDX) had a relatively quiet session recording its smallest range in more than two weeks. The resulting doji star candlestick reveals a range contraction session that almost certainly is due to the impending interest rate decision and can also be the precursor to a strong directional impulse.

Anecodotally one of the things that caught my eye this morning is the fact that as a consequence of the exalted performance by India’s stock market in recent days the industrialist Mukesh Ambani is now the world’s richest person surpassing Bill Gates for the first time.

Mr Ambani’s Reliance Industries, has been on a roll recently and after the Mumbai Sensex (^BSESN) index’s close just short of the 20,000 level yesterday, the net worth of its chairman and managing director, according to reports, rose to $63bn.


The investment banking sector (^XBD) has been meandering within a relatively narrow trading range and the volatility bands are constricting along with all three key moving averages which are converging. This condition suggests that a directional breakout could be imminent and the catalyst may be the FOMC decision.

A similar argument to the one just noted for the investment banks could be made for the longer term Treasury instruments.

The chart shows a box pattern with only thirty basis points covering the spread in yields since early September. While this confined range might be prolonged several factors could force a more definitive move beyond this box. Dollar weakness might limit the possibilites of a break below 4.4% but a weak employment report on Friday could certainly see this floor being tested.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 30, 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

SCHN  Schnitzer Steel Industries Inc  

In my weekend commentary I noted that Schnitzer Steel (SCHN) appeared to be poised for a breakout in the context of a rather constructive chart pattern but also cautioned that the earnings release expected yesterday had the capacity to disappoint. Traders were not shy in showing their dissatisfaction with the announcement as the stock plummeted by more than 15%. This chart underlines the reason why it is always prudent not to be too confident in anticipating directional moves from technical characteristics in the midst of the quarterly earnings seasons.



FCS  Fairchild Semiconductor International  

Fairchild Semiconductor (FCS) closed yesterday on top of all three moving averages that we track. I am intrigued by the strong impulse that lifted the stock on October 18th on very heavy volume and would be monitoring the stock intraday for signs of resumed buying pressure.



DVA  DaVita Inc.  

Momentum fatigue is showing on the chart for Davita (DVA).

Daily Form October 29, 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 29, 2007       06:26 ET

The S&P 500 (^SPC) has recovered from the violation of the trend line that I have drawn and is now poised to re-cross the extension of that line. In the current environment I would not be surprised to see another move back to the recent highs either on the back of some post easing euphoria or on any decline in the price of crude which will, such is the degree of optimism, be interpreted as profoundly bullish for the economy!


Last week I commented on the rather uneasy and nervous quality to sentiment that is being revealed on the chart patterns for the Nasdaq 100 index (NDX). Friday’s long lower tail with a close at the top of the recent range underlines the fact that there is relatively weak conviction on the short side at the moment but also, in view of the impending FOMC meeting, a hesitation to push too hard for an upward break to new multi-year highs.

Reviewing the overseas action as this is being written, the rallies in Asia and Europe - the Hang Seng was up by almost four percent, Mumbai by more or less the same percentage and at one point an almost two percent rally for the UK’s FTSE - it is hard not to escape the conclusion that asset managers see much greater risk in getting left behind and delivering sub standard returns than extending themselves too far in such elated and febrile market conditions.

This patently bullish behavior is even more remarkable in the face of increasing geo-political tensions involving Iran, the possibility of $100 crude as well as a lamentable performance by the world’s reserve currency.

The homebuilding sector fund XHB has been showing some signs of vitality again, possibly as those who have enjoyed the ride down are starting to retire short positions. The sector is poised to break above a long term downward trendline which almost coincides with the 50 day EMA. If there is decisive penetration through these levels there could be a tradable recovery rally, although I would not recommend getting too comfortable on the long side.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY OCTOBER 29, 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

ERES  eResearch Technology Inc  

eResearch Technology (ERES) may pull back further to the 20 day EMA level close to $11.50 but the pattern suggests that it could be vulnerable to further selling pressure.



SGP  Schering-Plough Corp.  

Schering Plough (SGP) has pulled back in quite a steep channel on subdued volume and may find rejection at the intersection of two moving averages above Friday’s close.



BZH  Beazer Homes Inc.  

Beazer Homes (BZH) has one of the most positive charts amongst the homebuilders and has now cleared the 50 day EMA hurdle.



PLCM  Polycom Inc  

Polycom (PLCM) has entered a congestion pattern after several strong upward sessions. The 200 day EMA just above $30 seems like a plausible target for short term traders.