Daily Form November 12, 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 12, 2007       06:34 ET

The Nasdaq 100 (^NDX) was last week’s big loser as the index dropped back by more than eight percent. Apple (AAPL) fell a rather stunning 12% during last week, Microsoft (MSFT) by more than 9% and even Google (GOOG) which for many fund managers can do no wrong slid by almost seven percent. After a very difficult week the charts for many of the large tech stocks do look quite precarious and despite steep drops there could still be further to go on the downside as sentiment has clearly taken a battering.

Aggressively bearish trading desks now appear to be switching their focus away from scaring institutions out of the financial stocks, and are looking at what they now see as the easier prey of those long only fund managers who have been piling into the large tech stocks for months and who now appear to be running scared and liquidating positions.

Looking at the chart for the Nasdaq Composite (^IXIC) a test of the 200 day EMA seems to be on the cards in the near term and it is more than conceivable that we could see a testing of the mid August low during trading this week.


The most perplexing issue during scanning the charts this weekend is the fact that while so many stocks look on the verge of possible avalanche action, including many of the previous high flying tech stocks and some of the large retailers, the sector action does not look uniformly bearish.

The banking index managed to record a small gain in Friday’s trading and as highlighted on the chart the intraday low was above that seen on Thursday. Although I would not be looking to establish long position trades in the banks, I suspect that there will be a bounce which could be surprisingly vigorous. Intraday trading in some of the banks and other financials could be very profitable, and the XLF sector fund is one way to play the inevitable short covering rallies that will arise.

Another positive divergence from Friday’s session was the relatively “good” performance of the Russell 2000 (^RUT) which, in percentage terms, fell back by only one third of the loss seen on the Nasdaq 100. Over the course of last week the small cap index managed to confine its loss to just over three percent. If we are facing a market meltdown as some are proposing, then one would have expected to see more panic liquidations in the small cap sector than we did last week.

One of the key levels that I shall be watching this week is the 730-5 area on the Russell 2000 index (^RUT) which marked the mid August low. If this is taken out the bears may see the big payday that they are increasingly betting on.

The Nikkei 225 (^N225) closed Monday’s trading below the mid August low underlining the fact that this index is acting more bearishly than any of the other major global equity indices.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 12, 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

PG  The Procter and Gamble Co.  

The chart for Procter & Gamble (PG) is pointing to a pullback channel following the recent gap down which maybe close to having run its course.



FRK  Florida Rock Industries Inc.  

The chart for Florida Rock Industries (FRK) reveals a bullish flag as well as a positive looking momentum pattern.



NT  Nortel Networks Corporation (USA)  

Nortel (NT) has been out of favor for so long that it appears to have discounted all the bad news and the current pattern looks as though some recovery may be imminent.



UNH  UnitedHealth Group Inc.  

United Health Group (UNH) surged above the 200 day EMA on twice the average daily volume in Friday’s downbeat session.



ADBE  Adobe Systems Incorporated  

Adobe Systems (ADBE) has fallen quite hard in recent sessions but the most plausible level of immediate support still lies below Friday’s closing price.

Daily Form November 9, 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 9, 2007 03:28 ET

Pronounced weakness in many of the recent high flying technology stocks was yesterday’s biggest story and when combined with continued erosion in the banking sector seen early in the session there was the capacity for things to turn quite ugly. At one point yesterday the Nasdaq 100 (^NDX) had dropped by more than four percent and tested the breakout level that has been marked on the chart.

The long lower tail which reflects the strong reversal behavior that took place across the equity markets in the afternoon may provide some comfort to the bulls today that a recovery/bounce pattern has been initiated.

From a fibonacci perspective the index made a 162% extension move up to its recent peak (based on the swing high and low from the summer correction) and has in just a few sessions retraced most of the move. I would not rely on the fact that the breakout/support level appears to have held as it seems unlikely that the overdue correction for the techs was just a one day affair. I am still quite wary of the near term direction and the propensity for strong whipsaw behavior and plan to trade lightly today if at all.


Another chart that illustrates the strong reversal behavior for most of the broad indices is found on the S&P 500 (^SPC). The index managed to close at almost exactly the 200 day EMA with a very modest loss and the doji star formation/hammer shows the extent of the recovery off the session low. I am pleased that I stepped aside in yesterday’s session as the erratic price moves, while attractive to scalping, do not suit the position trading model.

There was a further downdraft in the investment banks and the sector index came very close to the mid-August intraday low. Goldman Sachs (GS) came down just below $210 where some support was found. It was a recovery in the banks and financial sector that fuelled the powerful reversal rally on August 16 but despite some recovery efforts in the money center banks yesterday the sector failed to show similar dynamics to those seen when the August meltdown looked like getting out of control.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 9, 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

CSCO Cisco Systems Inc.

The precipitating factor for the major retrenchment in the techs yesterday appears to have been the comments of John Chambers the CEO of Cisco Systems that financial services companies were holding back on IT infrastructure projects. More likely as the probable "cause" was the fact that the asset managers that have been piling into large tech names were looking around at the technical damage being sustained in most other sectors of the market and suffered a serious attack of vertigo.



ORCL Oracle Corporation

Oracle (ORCL) also had a bad day dropping almost eight percent and the momentum and money charts reveal just how many negative divergences lay beneath the price high from earlier this week.



IBM International Business Machines Corp.

Another tech stock that corrected abruptly was IBM which was also featured as a short recommendation in last weekend’s commentary.



FMD The First Marblehead Corporation

One final short recommendation - First Marblehead (FMD) - from last weekend’s commentary has delivered consistently all week.



WFR MEMC Electronic Materials

MEMC Electronics (WFR), mentioned earlier this week, continued to act bullishly yesterday despite troubles in the technology sector