Daily Form October 31, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY OCTOBER 31, 2007       06:36 ET

The S&P 500 (^SPC) lost ground yesterday after breaking above a trendline through the highs in Monday’s session and also regaining its foothold above the trendline through the lows that I discussed in Monday’s commentary.

The index now sits in an interesting neutral zone about half way between the Oct 9th high and the October 19th low as the markets prepare for today’s FOMC announcement.

Let’s see if the market celebrates when, as expected, it gets what it has been wishing for.

The chart for the CBOE Volatility Index (^VIX) is revealing a triangular pattern which is often a precursor to a strong directional move.

The consumer discretionary sector fund, XLY, has a bearish looking pullback pattern that may well find resistance at the $37 level.

The oil services sector fund OIH is also revealing a bear flag formation that was breached to the downside with yesterday’s decline of more than four percent.


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.
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DRYS  Dryships  

In view of today’s market moving news and potential for chaotic trading conditions I am avoiding any new recommendations. I would like to point to a comment that I made in my weekend’s commentary - "Another group of stocks that have risen very dramatically and that may be due for a rest are the shipping companies and the chart for Dryships (DRYS) is revealing signs of waning momentum and fading money flow."

The 17.5% drop yesterday was an ample reward for the short trade that I entered during Monday’s session.

EXM  Excel Maritime  

Excel Maritime (EXM), also in the shipping sector, even outstripped Dryships’rewards on the short side with a 20% drop yesterday. Such large corrections in a single day are not too surprising given the run-ups that these stocks have enjoyed but,if the declines become even steeper, they may be pointing to a more measured re-appraisal of impending global economic activity.

CPHD  Cepheid  

Alas not all of the short candidates mentioned in the weekend commentary performed in line with expectations and Cepheid (CPHD) was a big riser yesterday and blew through my stop with a more than nine percent rise on the day.

HAL  Halliburton Company  

Haliburton (HAL) which I discussed on the short side in the weekend’s commentary has dropped more than five percent this week so far and although I exited the position on yesterday’s close this could have further to fall in the intermediate term.