Daily Form November 28, 2007

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY NOVEMBER 28, 2007       06:25 ET

It was a roller coaster ride for US equity traders yesterday as the major indices zigged and zagged through another manic depressive day of trading. Lots of analysts and commentators tried to make sense of the capital injection by the Abu Dhabi sovereign wealth fund into Citigroup. Some rejoiced that Citigroup has had no trouble in raising new capital to preserve its liquidity and protect its dividend while others queried why the investment fund had to be rewarded with such generous provisions. The preferred offering included not only favorable equity conversion privileges but an 11% coupon and also protection to the fund from any dividend cut.

Just as a Saudi prince came to the rescue of Citibank in the early 90’s another group of Arab investors have now taken the largest stake in the enlarged bank/financial services conglomerate. What better way to illustrate the interdependency of major players in the global economy - petrodollars are recycled back into the largest US based banking operation and perhaps the global economy will be insulated from ever more problematic developments in the financial system.

An excellent article by Gillian Tett in today’s Financial TImes suggests that there are deep seated issues that will need to be confronted by regulators and central bankers before today’s banking system is able to comprehend and absorb all of the entanglements that are currently unravelling.

The Nasdaq Composite (^IXIC) registered an inside day with a close just at the 200 day EMA and I confess to being somewhat bemused by the current market environment. I have hardly any appetite on the long side of the market but sense that there are too many short sellers that are trying to precipitate the break below key support levels and that they will anxiously run to cover whenever there is some vaguely good news that spooks them.


A week ago I was interviewed on CNBC Europe and stressed that the 820 level on the S&P 400 Midcap index was a key support level as it represented a conjunction of key trendlines including a probable neckline for an extended head and shoulders pattern. As the chart reveals the market seems still to be "testing" this key level and while the outcome remains uncertain I shall be restrained in my own trading and be making relatively few specific suggestions in this commentary.

In Monday’s commentary I mentioned the growing divergences in the ETF for US West Texas Intermediate crude and as the chart reveals the fund gapped down yesterday and may seek out the $70 level before meaningful support kicks in.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 28, 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

CMED  China Medical Technologies Inc.  

CMED which I recommended recently on the short side has delivered substantial profits since completion of the bearish pullback pattern that is highlighted on the chart.



MBI  MBIA Inc.  

If MBIA (MBI) is registering a double bottom this could be a promising sign for those looking for a tradable upswing in the financials but one needs to be just as cautious here as with stocks in the homebuilding sector which continue to send out confusing signals that turn out to be false bottoms.



WFC  Wells Fargo and Company  

Wells Fargo (WFC) may sink down to new closing lows as it revealed significant write-offs on its mortgage portfolio after the market closed yesterday. In after hours trading the stock was down about 5% and what is most unsettling about the announcement is that much of the asset deterioration was not specifically in the sub prime sector per se. The bank’s announcement underlines the malaise that is now infecting all classes of residential real estate across the nation and which is leading a growing number of "experts" who, in September could see no risks of a recession, are now confidently predicting one.

Daily Form November 27, 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 27, 2007       06:55 ET

The feel good rally predicated on last weekend’s better retail activity than expected soon fizzled in yesterday’s trading and structured financial product woes came to the fore again. The big casualties were the homebuilders and many mortgage related financials with Freddie Mac (FRE) and Fannie Mae (FNM) suffering ignominiously again.

News that HSBC, the UK based global bank, is abandoning its SIV shenanigans and taking all of the assets and obligations on to its balance sheet will add further pressure to Citigroup and JP Morgan who have still to get their super SIV scheme off the ground. The injection of $7.5 billion in new capital to Citigroup by a sovereign wealth find from Abu Dhabi could just have been coincidental timing but once again there is a slightly scary sense that the conceptual edifices created by financial engineering are groaning again in the wake of further aftershocks triggered by the CDO meltdown.

One of the more disconcerting developments was the performance of the Russell 2000 (^RUT) which broke below the mid August low and closed at its lowest level in over a year.


The S&P 500 (^SPC) came within a whisker of the mid August closing low and my suspicion is that the intraday low of August 16th of 1370 will be on the radar screen in the next few sessions. A failure to hold at this level would almost certainly trigger panic institutional liquidations and we could see even more money move into the Treasury complex which, contrary to our call yesterday, proceeded to knock down another sixteen basis points to close decisively below the 4% level.

In overnight trading the Nikkei managed to mount a late rally to erase a loss which would have seen it register another multi-period low but the Hang Seng Index (^HSI) was unable to hold on to most of Monday’s gains which had enabled the index to regain the 200 day EMA, and the index gave back 1.5%.

The Shanghai index (^SSEC) also dropped a further two percent and the index is now closing in on a twenty percent decline since its October 16th historic high.

As a reminder to readers, but not specifically with any short recommendation at present, there is a way to gain exposure to Chinese stocks generally through the exchange traded fund FXI.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 27, 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

SVU  Supervalu Inc.  

Super Value (SVU) peeked above a line of resistance on heavy volume and the chart pattern suggests that a breakout is imminent.



LAZ  Lazard Freres  

Lazard (LAZ) ran into resistance at the intersection of all three moving averages.



CG  Loews Carolina Group  

Loews Carolina (CG) has a cluster of long upper shadows and yesterday’s rather striking shooting star, as well as the MACD negative divergences which are quite evident, looks promising on the short side.

Daily Form November 26, 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 26, 2007       06:39 ET

Quiet trading at the end of last week allowed a recovery from the rather ominous looking charts that were apparent at the conclusion to last Wednesday’s trading. Many indices peered over the abyss during last Wednesday’s session but managed to pull back towards the close and remained above key support levels.

The S&P 400 Midcap index (^MID) retreated to the 820 level as discussed in our last commentary but it is possible that the impending holiday on Thursday acted as buffer that allowed traders to postpone a thorough testing of the mid August lows.

Friday’s session saw a bounce which may have further to run as sentiment will have been given a boost from positive retail numbers. However, with conditions in the money markets still posing real liquidity problems for many, I would be surprised not to see the 820 level tested again more robustly in coming sessions.


The Nasdaq Composite (^IXIC) transgressed the 200 day EMA last Wednesday but then returned above it in Friday’s extremely low volume session.

The yield on the ten year note has declined by 125 basis points since June resulting from a growing consensus that the direction of short term rates is down and decisions by asset allocators to seek the safety of Treasuries in preference to their aversion to many other financial assets. The risk/reward ratio now favors short sellers of Treasuries especially as analysts and commentators celebrate the better than expected news about the vitality of the US consumer at the beginning of the peak shopping period.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 26, 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

MHP  The McGraw-Hill Companies Inc.  

McGraw Hill (MHP) has quite noticeable positive money flow divergences.



SLT  Sterlite Industries India Ltd.  

Sterlite (SLT) reveals successively lower highs



USO    

The exchange traded fund, US Oil (USO) that tracks the performance of West Texas Intermediate crude is revealing some momentum and money flow divergences.