Daily Form November 6, 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 NOVEMBER 6, 2007       06:49 ET

The Russell 2000 (^RUT) slipped further back in yesterday’s trading and reached down below the intraday low that was touched in Friday’s trading. I shall be watching to see how much support is provided in the 780 vicinity, an area of chart support/resistance dating back more than a year, as the under-performance of the small caps remains another concern for equity markets that have a lot of adversity to contend with at present.


The financial sector remained under pressure again in yesterday’s trading with the banking index (^BKX) losing another one percent, but this was surpassed by greater weakness in the investment banking sector (^XBD). In particular Goldman Sachs (GS) showed relative under-performance as it dropped almost five percent on fears that it may have greater adverse exposure to structured financial products than has hitherto been acknowledged. The mid August intraday low for the sector may be a near term target for the bears.

Charts of many retailers are showing distribution and the S&P Retail index (^RLX) closed at a new 52 week low.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 6, 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

CAM  Cooper Cameron Corporation  

Cooper Cameron (CAM) has a bearish pullback pattern with negative divergences on both the MACD and MFI chart segments.



RHT  Red Hat Inc.  

Featured in yesterday’s column as an example of a cup and handle pattern Red Hat (RHT) appears to be on the verge of validating the upside breakout pattern.



MON  Monsanto Company  

The chart for Monsanto Company (MON) is revealing negative momentum divergences.



WFR  MEMC Electronic Materials  

MEMC Electronics (WFR) has a pennant formation at an all time high with positive money flow characteristics.



HANS  Hansen Natural Corporation  

Hansen Natural (HANS) recently recorded a lower high and the MFI chart shows that distribution was taking place during the revisit to the level above $66.

Daily Form November 5, 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 NOVEMBER 5, 2007       05:35 ET

The weekly chart for the banking index (^BKX) reveals an intriguing pattern where the sector has now retreated to the level from October 2005 from which the trendline that was clearly violated early this summer originated. Could this prove to be a support level where traders decide that the worst of the news is behind us? I suspect that this argument will be heard in coming days but I remain sceptical.

When top bankers are the lead story in the news media and when analysts suspect that there are more alarming discoveries to be unearthed as a consequence of the ingenious complexity of financial engineering there almost certainly will be further upheavals in the credit markets in the weeks to come. Expect central bankers and politicians to be recycling all of the usual reassurances about the fundamentals of the world economy being sound. I believe that there is good reason to herald the vitality of the real global economy but it just does not seem feasible that insidious corrosion at the heart of the financial economy can be brushed aside as sanguinely as some would have us believe.


The Russell 2000 (^RUT) declined by 2.9% last week and the weekly chart below shows that there is a clear possibility that we have seen a lower high recorded in early October from that seen earlier in the summer. The 800 level has been breached and the next key level that is quite apparent on the weekly chart is the 780 level which represented strong resistance in April 2006. For the underlying bullish argument to remain credible it is important that the 780 should now hold as firm support.

I recently suggested that the 4.4% floor on yields for the US ten year Treasury note, which has been in place for more than two years, could well be breached and Friday’s drop down to 4.29% could presage a sharper attrition in yields. Despite a positive reaction from some to Friday’s employment data, the Treasury yield barometer is pointing to the fact that bond traders are discounting a weaker economic environment than the consensus forecast of many institutional equity investors. This decline in yields is even more noteworthy given the persistent weakness in the dollar which continues to show any willingness to bounce. Ironically a full blown financial crisis would trigger panic dollar buying.

The Hang Seng Index (HSI) concluded Monday’s session with a five percent decline and as the chart reveals the probable short term target will be a test to see whether the 50 day EMA at 27600 will hold. The index has risen dramatically since the August low and a severe correction was to be expected but the pertinent question is whether the 32000 level experienced last week will turn out to be a major top or just the point at which the current correction began.

To my mind there is too much complacency that the Chinese market will not succumb to bubble deflation until after the Olympics next year. The problem is that if traders are expecting that to happen but don’t want to be behind the curve there may be a gradual creep forwards on the timing for this larger correction/crash.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 5, 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

SII  Smith International Inc.  

Smith International (SII) has been in a pullback phase on modest volume since the large sell off on October 19th and now faces a potential resumption of weakness as it approaches the resistance of the two key moving averages which have converged near to $68.



CMI  Cummins Inc.  

Cummins (CMI) has a similar pattern to SII and should be vulnerable close to $125.



BW  Brush Engineered Materials Inc.  

One more similar pattern to the previous two charts that we have examined is found for Brush Engineered Materials (BW).



RHT  Red Hat Inc.  

Red Hat (RHT) appears to be poised for an upside breakout from a cup and handle pattern.



DVA  DaVita Inc.  

Last week I noted that there was momentum fatigue revealing itself on the chart for Davita (DVA). Friday’s nine percent decline followed on from the previous session that I have highlighted which constituted a clear lower high from the previous in mid October.



ERES  eResearch Technology Inc  

Another short candidate mentioned here last week performed very much in line with my comments then -"eResearch Technology (ERES) may pull back further to the 20 day EMA level close to $11.50 but the pattern suggests that it could then be vulnerable to further selling pressure."

Daily Form November 2, 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 NOVEMBER 2, 2007       03:53 ET

The banking sector had a calamitous session as Citigroup (C), discussed below, came under attack following analyst downgrades. Questions were raised regarding capital adequacy and the sustainability of the dividend both hot potato issues that caused waves of institutional selling and short sellers to pile further pressure onto the whole banking sector.

Reviewing the chart for the sector there is clear evidence of failure at several points to move above the 200 day EMA and yesterday’s close below 100 suggests that the October 2005 low near to 93 could be the next target.

The mood in the credit markets has recently been characterized as being one of a flight to simplicity as banks and other financial intermediaries have completely lost their appetite for complex debt instruments. The problems faced by many of the large banks and their SIV’s is that the financing that was contrived to be off balance sheet have now been most clearly shifted on to the bank’s own books. Since there is no secondary market for much of this asset backed paper questions are legitimately being asked as to whether there is sufficient capital to finance all of their outstanding commitments. The Fed was forced to come to the rescue yesterday with a $41 billion injection of liquidity and this underlines the fact that the problems in the credit markets will be far more enduring than some of the upbeat cheerleaders have been acknowledging.

It could be extremely unpleasant for global capital markets if there is even a sniff that a major US bank could be vulnerable to what happened to Northern Rock in September.


The Russell 2000 (^RUT) took yesterday’s woes on the chin as it dropped by four percent, broke down through a key trendline and closed below the pivotal 800 level.

In overseas trading the Hang Seng Index (^HSI) is down more than three percent as this is being written and could be ready to move back down below the 30000 level. The Nikkei 225 dropped by more than two percent and London’s FTSE following yesterday’s two percent decline is down another one percent in early trading after noticeably failing to make a new multi-period closing high earlier this week.

If the bears become more emboldened by yesterday’s tactical victory the Nasdaq Composite (^IXIC) could be vulnerable to a retreat all the way back to the early October break out near 2720 which also coincides with the 50 day EMA

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 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

C  Citigroup Inc.  

Citigroup (C) dropped by almost seven percent and recorded a bearish looking candlestick that could best be described as an inverted hammer where all efforts to recover intraday met with rejection. Volume was more than twice the moving average and the stock looks to be headed down to the mid $30’s last seen in the late summer of 2005.



MBI  MBIA Inc.  

No mercy is being shown for the insurers and guarantors of structured finance issuers and mortgage backed securities. MBIA (MBI) one of the largest in the sector has almost been cut in half in just the last three weeks and again very awkward questions have been raised as to their capital adequacy and ability to honour their obligations in the case of serious defaults.



GRMN  Garmin Ltd.  

Garmin (GRMN) continued its downward trajectory in yesterday’s trading and dropped a further seven percent. The stock has now violated a trend-line through the lows and as discussed here yesterday the company faces a critical challenge in its bidding battle for TeleAtlas the map provider.



ALVR  Alvarion Ltd.  

Alvarion (ALVR) has dropped more than twenty percent in the last two sessions and it is instructive to observe the very subdued volume during the pullback phase that has been marked on the chart.



SLAB  Silicon Laboratories  

One needs to be cautious on the long side in current market conditions but Silicon Labs (SLAB) has a bullish flag formation.