Daily Form December 21, 2007

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FRIDAY DECEMBER 21, 2007       07:43 ET

Recent price congestion was loosened up somewhat yesterday especially with regard to the large Nasdaq stocks and the small and midcap issues. Whereas the S&P 500 only managed to produce a 0.5% gain on the session the Nasdaq 100 (^NDX) steamed ahead with a 1.9% gain (Oracle’s report from Wednesday was undoubtedly a shot in the arm for the tech bulls) and the Russell 2000 (^RUT) registered a healthy 1.5% gain as well as a more than one percent gain for the midcaps.

The S&P 400 Midcap index (^MID) has a well defined triangular formation whose apex coincides with the converged moving averages. The chart reinforces the view that we have been in an extended trading range since the summer correction and suggests that in the intermediate term we should be expecting a significant directional breakout.

The Daily Form commentary will only appear intermittently over the next ten days and I would like to take this opportunity to extend to all readers seasonal best wishes and hope that you enjoy prosperous trading in the New Year.


The Nasdaq 100 (^NDX) was the stand out performer yesterday and the chart reveals a similar triangular pattern to the one we just reviewed but with a more clearly defined upward bias. Could it be that technology will re-assert the leadership required to drive the overall market higher despite the growing prospects of a serious slowdown in those markets with the most debt burdened consumers and deflating real estate markets?

In Friday morning trading across the European markets an impressive upside performance is gathering pace. The chart below shows Germany’s Dax index (^GDAXI) as it stands while this is being written. The index has pierced above the 8000 level and in all likelihood we could be setting up for a testing of the December 12th intraday highs just above 8100. A strong plus for the German economy is the fact that consumers have been much less exposed to the "wealth effect" of puffed up real estate bubbles.

Problems are mounting for the UK economy. Public sector borrowing is way ahead of the government’s forecast, there has been a collapse in commercial property prices that has forced a major investment fund to suspend redemption privileges to investors, and there is the continuing embarrassment for the government of what to do with Northern Rock.

One of the most conspicuous casualties is the pound and the avalanche like fall from its elevated status above $2.10 just a few weeks ago is apparent on the chart for the exchange traded fund, FXB. There is possible support from the 200 day EMA level at $1.98 but a near term target level at the August lows of $1.95 would seem to be the more likely scenario.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY DECEMBER 21, 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

CTV  Commscope Inc  

Commscope (CTV), featured here yesterday, did manage to pull away from key moving averages and I would favor a continuation move up towards a target of $55.



CPKI  California Pizza Kitchen  

California Pizza Kitchen (CPKI) faces a hurdle at the 50 day EMA but the MACD divergences are supportive and yesterday’s move ahead on above average volume was constructive.

Daily Form December 20, 2007

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Trade successfully without having to be right about the underlying market direction
THURSDAY DECEMBER 20, 2007       07:32 ET

It was another roller coaster ride in yesterday’s trading but within a relatively narrow range. The inside formation that is apparent on the chart for the Nasdaq 100 index (^NDX) as well as the doji pattern captures the indecisive flavor of recent sessions well. Options expiration seems to be an important contributory factor to the hesitation and the news-flow regarding CDO’s and related difficulties amongst the financial sector continues to weigh on sentiment. As I have discussed before the injection by sovereign wealth funds in the ailing US banking system is an excellent example of the interdependencies in the global economy and tempers my willingness to embrace the more apocalyptic scenarios being peddled by some pundits.


Over the last three sessions the Dow Jones Industrials index (^DJI) has closed within a very confined range and in close proximity to the 200 day EMA. I shall be looking for the logjam to break in the next two sessions and would not be surprised to see the bulls trying to run in the early going today buoyed by the strong Oracle report from late yesterday.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY DECEMBER 20, 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) managed to break free of an area of chart congestion on above average volume and a short term target of $74 is feasible.



T  AT and T Corp.  

AT&T has pulled back to probable support at the convergence of the two shorter term moving averages.



CRL  Charles River Laboratories  

Charles River Labs (CRL) has performed well following the bull flag that evolved in early November. The recent dissipation in momentum and money flow suggests that a period of consolidation is imminent



CTV  Commscope Inc  

Commscope (CTV) is at a potential breakout point but has to pull away from all three moving averages.



FFHL  Fuwei Films (Holdings) Co. Ltd.  

Following the suggestion from yesterday Fuwei Films (FFHL) delivered more than a six percent return and despite the strong move it still remains within the pullback pattern.

Daily Form December 19, 2007

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WEDNESDAY DECEMBER 19, 2007       07:24 ET

The long lower tail to the hammer candlestick which sits perfectly astride the 200 day EMA could be evidence that the Nasdaq Composite index (^IXIC) found support at a key level in yesterday’s trading. There was not the same kind of compelling evidence of a floor being put in place that we were given from the dramatic trend day reversal off the bottom of the range that we saw in late November, and I must confess that I am not convinced that the downside testing is over.


The Russell 2000 (^RUT) produced the most impressive reversal yesterday and the engulfing green candlestick could give one a little more confidence to the hyptohesis that a near term support level may have been established. Action in the overseas markets overnight has been varied and I sense that global traders will be watching the US markets closely over the next couple of days for clues as to the best positioning ahead of the holiday shortened week ahead.

The S&P retail sector index (^RLX) also pulled out of its recent decline near to a critical level.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 19, 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

HGSI  Human Genome Sciences  

Here is the comment that I made on Monday regarding the triangular pennant pattern for Human Genome Sciences (HGSI) - "A directional breakout is imminent and I would suspect that it is upwards."



SYNA  Synaptics Incorporated  

Further to yesterday’s discussion regarding Synaptics (SYNA) the stock plummeted another eight percent yesterday but may now find support at the 200 day EMA.



RS  Reliance Steel and Aluminum  

Reliance Steel (RS) is in the middle of its trading range and appears to be finding support above all three moving averages.



JNPR  Juniper Networks Inc.  

Juniper Networks (JNPR) has a pullback formation and the stock appears to be finding support at the converging shorter term moving averages.



FFHL  Fuwei Films (Holdings) Co. Ltd.  

Fuwei Films (FFHL) is a volatile and speculative stock that may not suit everybody’s trading style but there is evidence of a flag/pullback that has now connected with two moving averages.

Daily Form December 18, 2007

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Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY DECEMBER 18, 2007       05:57 ET

Continuing price erosion for the major equity indices in yesterday’s session is now clearly signalling the fact that traders are preparing to test again the mid August lows. Having retraced all of the early December gains the Russell 2000 (^RUT) is, as is often the case, leading the way from a directional point of view.

The small cap index actually broke below the August 15th closing low on November 26th (as well as the intraday low of August 16th) and, after yesterday’s two percent decline, less than five points further down on a closing basis would produce the lowest level on the index since early October 2006. The economic outlook certainly suggests that we should no longer be expecting leadership from the small cap index, but having said that a failure to find support at this summer’s low would be another negative development for the bulls.


In terms of relative performance the Nasdaq Composite (^IXIC) is outperforming the small cap Russell 2000 as it is still more than 100 points above the mid August closing low. The Nasadaq index closed below the 200 day EMA yesterday and faces another chart support level at the early September and also late November lows at 2540.

Volume has been light during the last two down days and, in terms of assessing the likelihood of a successful rescue effort by the bulls with a seasonal rally into the holidays, it will be useful to monitor the volume characteristics during the remainder of this week as key chart levels are being tested.

The chart pattern for the gold mining stocks (^GOX) reveals the descending wedge pattern that is often a precursor to a price breakdown.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY DECEMBER 18, 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

AFFX  Affymetrix Inc  

Yesterday’s comment that "AFFX rallied strongly in Friday’s trading but came to rest at a level where resistance is likely to produce a tradable pullback" proved to be timely. A good entry point was provided on the open and a short position could have produced a 5% return on the day.



SLT  Sterlite Industries India Ltd.  

Sterlite Industries (SLT) which has caught my attention a couple of times this month finally succumbed to the clear negative divergences on the momentum chart and yesterday plummeted by more than ten percent.



PLL  Pall Corp.  

Pall Corp (PLL) could bounce off the intersection of all three moving averages.



NUE  Nucor Corporation  

Nucor (NUE) is also in the vicinity of all three moving averages as well as a pivotal chart level.



MRK  Merck and Co. Inc.  

Merck (MRK) is approaching probable support that is reflected in the upward trendline and ascending price channel that has been in place since early November.



DYN  Dynegy Inc.  

The chart for Dynegy (DYN) reveals positive divergences.

Daily Form December 17, 2007

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Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY DECEMBER 17, 2007       07:33 ET

Friday’s deterioration suggests that the test of the August lows in late November may not have been as conclusive as the bulls had hoped for. The reversal behavior following the FOMC statement and the need for concerted action by several central banks are underlining yet again the fragility of the financial sector. In such a climate it is not surprising that many fund managers refuse to believe that the biggest banking shocks have yet to be fully discounted by the market.

But stepping back from the tumult of last week the larger picture shows that the S&P 500 (^SPC) occupies the middle ground between the low of mid August and the recovery high in October. As the chart suggests there is a trading channel that has prevailed since the summer and this is reinforced from a technical perspective by the fact the all three key moving averages are converging in the center of that channel. Only eleven points separates the levels of each of the 20,50, and 200 day EMA’s and Friday’s close on the index at 1467, while it puts it below all three levels, still keeps the trading range hypothesis intact.

The problems in the money markets and the persistently high spreads between base rates and their equivalent LIBOR rates are definitely troublesome, but one would have to believe that central banks have become impotent, and that all rescue attempts are doomed, to conclude that we are headed towards some kind of financial Armageddon. Almost certainly there are some further large write-downs ahead but I suspect that in the near term long only fund managers will continue to take some comfort from the Fed’s now obvious resolve and intent to prevent a systemic asset deflation.


The chart pattern on the banking index (^BKX) now clearly illustrates the failure at the 50 day EMA level which I discussed last week. There was the now confirmed false break above the descending trend line, and even one close above the 50 day EMA on December 10th, but since then the index has sunk rather quickly and now seems to be ready to re-test the closing low of 88.12 from November 26th.

The Hang Seng index (^HSI) started the new week on a shaky note and moved down almost 1000 points or 3.5% and seems poised to check whether previous support at 26,000 which was touched on November 22nd is going to hold again. The convergence of the two shorter term moving averages in the proximity of 28,000 should now provide a firm barrier to any recovery efforts before the end of the year.

Volume for the exchange traded fund XLF which comprises many of the larger players in financial services was anemic on Friday and I shall be watching to see whether we get a pick up this week as we approach the previous low.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY DECEMBER 17, 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

SYNA  Synaptics Incorporated  

In Friday’s trading Synaptics (SYNA) validated the bearish interpretation of the chart pattern since early November that was discussed here about ten days ago. The lower high in late November, clear MACD divergences and the pullback channel set the stage for Friday’s drop of more than six percent.



AFFX  Affymetrix Inc  

AFFX rallied strongly in Friday’s trading but came to rest at a level where resistance is likely to produce a tradable pullback.



APD  Air Products and Chemicals Inc.  

Air Products and Chemicals (APD) appears to be preparing to test the recent breakout and I would be a buyer as the stock approaches the $100 level.



INTC  Intel Corporation  

Intel Corporation (INTC) has retreated to a pivotal chart level and probable support from the 50 day EMA.



HGSI  Human Genome Sciences  

The chart for Human Genome Sciences (HGSI) reveals a triangular pennant pattern which coincides with a chart resistance level. A directional breakout is imminent and I would suspect that it is upwards.



DOX  Amdocs Limited  

Amdocs (DOX) has rallied back to probable resistance from the 200 day EMA.

Daily Form December 13, 2007

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Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY DECEMBER 13, 2007       06:58 ET

The most characteristic pattern from yesterday’s erratic session was the spinning top candlestick which reveals itself across most sectors, indices and individual chart patterns. The announcement of the coordinated effort from central bankers to attempt to provide comfort to the bankers who have stopped trusting each other (mainly because they cannot trust the integrity and transparency of their own balance sheets) triggered an early rally and some short covering but then traders began to worry that maybe the central bankers know about even bigger skeletons that were buried in the vaults.

The chart for the S&P 500 (^SPC) displays a text book example of a doji/spinning top formation with long shadows. The pattern which straddles the 50 day EMA indicates indecision and hesitation at a critical inflection point and will almost certainly add nervousness and increased volatility to coming sessions.


Crude rallied strongly yesterday and the ETF for West Texas Intermediate (USO) rallied off support levels. It seems safe to assume that there will be another effort to penetrate the $100 level on the barrel price and $78 on the price of the USO fund.

Germany’s Dax (^GDAXI) registered a multi-week high in yesterday’s trading and is challenging all time highs from 2000 and the most recent high of 8105 that was achieved on July 16, 2007 just before the sub-prime woes re-asserted themselves and produced the August avalanche.

Relative strength in this key European market could be partly explained by a the fact that some asset managers may be favoring some of the non Anglo-Saxon markets which have fewer structural problems resulting from the over-leveraged consumers and bubble like real estate conditions that are to be found in the UK, USA, Australia, Canada etc.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY DECEMBER 13, 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

DNA  Genentech Inc.  

Genentech (DNA) has pulled back following the large leg down in early December towards overhead resistance from key moving averages.



RACK  Rackable Systems Inc.  

Rackable Systems (RACK) has a mini bull flag formation.

Daily Form December 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
WEDNESDAY DECEMBER 12, 2007       06:05 ET

After briefly flirting with the 1520 level in early trading the S&P 500 (^SPC) ran into a barrage of selling which was exacerbated by the FOMC’s decision not to play Santa and deliver the 50 basis point cut that was not really expected but hoped for. In Monday’s column we reviewed the overhead trendlines that coincide in the region of 1520/30 and it is not too surprising that the bears were waiting patiently to ambush the rally that has carried the indices up throughout December.

Volume on the SPY proxy was the heaviest since the selling in later November and this serves to underline the fact that the volume readings during the earlier part of this month have been quite anemic.

I said on Monday that the market patterns have been somewhat confusing since the late November sell-off, primarily because of the degree of short covering and the relatively weak volume, and it is quite possible that there really could be renewed vitality for the bearishly oriented hedge funds following yesterday’s trading. However I would still be looking for a possible return to the 1525 level and if we can break through that key level we may still see new highs before 2007 is done.


The major casualties in yesterday’s sell-off were the banks, homebuilders and mortgage related financial services companies. The banking index (^BKX) looked to be on the brink of a significant breakout above the 50 day EMA and descending trendline but slipped back quite abruptly yesterday. The chart for the sector fund for the financials, XLF, shows quite revealingly what could have been a breakout trap laid by the bears to ensnare the optimists that the worst news had already been discounted by the markets.

The setback for the sector is not too surprising and I had pointed this out in last Friday’s comments regarding the technical picture for the banking sector when I commented that "in the intermediate term the attainment of this level (i.e. the 50 day EMA) could provide trading desks with a cue to take some money out of the sector and could mark the point at which this rather remarkable rally could run into strong resistance."

So have we seen a false breakout? In the short term - probably yes. But longer term, while the fundamentals continue to look gloomy for the banks, the fact that sovereign wealth funds and petrodollars are being made available to re-capitalize the hapless banks and bail them out of their poor judgments should provide formidable underlying support near to recent lows.

Treasury prices rallied strongly yesterday after Friday’s strong upward move on yields. There are undoubtedly many confusing cross currents at the moment and perhaps yesterday’s strength in bond prices had as much to do with changing perceptions by forex traders as they re-evaluate the dollar’s plight. A fifty basis point reduction would have knocked a big hole in the newly found confidence and belief from some currency traders that the dollar may be ready for an interim rebound.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 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

VMC  Legacy Vulcan Corp.  

Legacy Vulcan (VMC) has returned to an area of potential moving average support.



MBT  Mobile TeleSystems OJSC (ADR)  

Mobile Telesystems (MBT) was cited on Monday as showing evidence of negative momentum (MACD) divergences as well as some evidence of distribution despite the recent higher prices. As commented this kind of dissonance can often precede a tradable correction.



MDT  Medtronic Inc.  

Medtronic (MDT) should find support near to yesterday’s close.



GRMN  Garmin Ltd.  

Although I have been bearish (largely from a fundamental point of view) on Garmin (GRMN) the present technical pattern looks reasonably constructive on the long side.



CSCO  Cisco Systems Inc.  

Cisco Systems (CSCO) showed on one of my pattern scans with a chart formation that shows that the recent weakness may have set the stage for a recovery effort.



CBG  CB Richard Ellis Group  

CB Richard Ellis Group (CBG) has an ascending wedge formation and this could be pointing towards an eventual test of the 200 day EMA near to $29.