Daily Form April 28, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY APRIL 28, 2008 05:02 ET

In the coming week traders will have two key events to digest which could undermine some of the “wisdom” that is incorporated in the market’s current future discounting assumptions. One is the release on Wednesday of the FOMC minutes, and if there is a signal that rate easing may be done or close to done, then traders will have to decide whether they have calibrated this eventuality correctly. On Friday the employment report will be released, and, in this regard, the widely held assumption that the downturn is going to be relatively shallow, will be severely challenged if the numbers are awful. Providing that the consensus view does not get a double whammy on these two issues, I would be targeting 1455-1460 during May for the S&P 500. This would bring us back to the level from late February 2007 which marked the beginning of the market’s acknowledgement of the looming crisis with mortgage backed securities.

The S&P 500 (^SPC) concluded last week at 1397 and the index now confronts two significant technical hurdles. On the weekly chart the 50 week EMA lies at 1403 and on the daily chart the 200 day EMA is to be found at 1407. To feel more comfortable about the authenticity of the recovery I would ideally want to see us close out this coming week with a close above 1410 on the S&P 500.


Encouraging my suspicion that the S&P 500 index is about to break through the 1410 barrier is the recent positively diverging behavior of the S&P 400 Midcap Index (^MID). As noted in my recent commentaries the index has been in the vanguard of the current rally and the midcap stocks have already surpassed both the weekly and daily EMA target levels discussed above, during last week’s trading.

Although I am generally upbeat about the prospects for equities there is one characteristic of the current market environment that is causing some concern. As is evident from many market dynamics there is a growing complacency. The CBOE Volatility Index (^VIX) continues to register new low readings for the year, and even plunging consumer confidence levels to multi-year lows are treated with a casual indifference. This over-confidence that the worst is already behind us, is pushing us toward a situation where we are now seeing a diametrical reversal in sentiment.

Before the cathartic events of mid March there was too much pessimism and despair about a financial meltdown, and now there appears to be an over-reaction whereby all bad news is treated positively by many traders. What this is pointing to, I suggest, is the fact that the market is not really being stress tested on the sell side at the moment. The drift upwards however has the potential to be suddenly disrupted if the consensus view becomes persuaded that its discounting foresight has miscalculated the severity of the global slowdown.

The theme that I am seeing within the markets generally, is that across several asset classes, there is a re-alignment taking place where the safe haven bets of a few weeks ago – Treasuries, consumer staples and even some commodity plays are being unwound as fund managers become more adventurous with equities again.

The yield on the 30 year Treasury Bond looks set to test the 4.75% level which marks the upper boundary for 2008 so far, and how well Treasuries perform, during this testing of the upper range limits, will also help in understanding how much further the global equities recovery has to go. Yet another factor that could play into the sector rotation strategies is the fact that the recent $1.60 level achieved by the euro could well turn out to have been the fulfillment of a long term strategic target and one that may have left many currency traders too tilted on the short side of the US dollar.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY APRIL 28, 2008



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

NFLX Netflix Inc

Netflix (NFLX) succumbed to the negative divergences on the MACD and MFI charts last week and could pull back towards $36 before further selling is to be expected.



K Kellogg Company

Some defensive plays are beginning to show declines. Kellogg (K) has clear evidence of negative divergences in momentum and there are also signs of distribution following a lower double top pattern.



KO The Coca-Cola Company

Coca Cola (KO) dropped below two key moving averages in Friday’s trading.



OSTK Overstock.com Inc.

On Friday I noted that Overstock.com (OSTK) appeared to have consolidated its recent upsurge and that a further leg up seemed likely. The stock provided an excellent entry opportunity on Friday morning - opening at the same price as the previous close - and would have returned more than eleven percent for the session.



GS The Goldman Sachs Group Inc.

The broker/dealer sector (^XBD) registered an impressive performance last week. The investment banking index gained 6.5% for the week and also sustained two closes above the descending trend-line through the highs seen in 2008. Reviewing the bigger picture targets for this index I would be looking for continued progress from here up towards the 200 level. At this level on the XBD there could be considerable resistance from both the 50 week EMA and the 200 day EMA. Goldman Sachs (GS) would be my preferred play within the sector and I would suggest an intermediate term price target of $215. At the 200 level on this index, which might well co-occur with the attainment of the 1455 level on the S&P 500, I would expect to see a more determined effort by the short side to test the conviction behind the rally phase.



CAT Caterpillar Inc.

Caterpillar (CAT) could reach back towards $80 but should then find renewed buying interest

Daily Form April 25, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY APRIL 25, 2008       07:04 ET

Yesterday’ session produced many substantial price surges amongst financial services, homebuilders and specifically the investment banks. Also a feature was the continuation of the breakthrough in the semiconductors which I alluded to in Tuesday’s commentary. LSI Logic was one of the standout performers of the day with a 20% gain and LRCX and MRVL were also five percent plus movers. All of this provides more evidence that the tide is turning as hedge funds continue to re-allocate amongst major asset classes.

The chart for the broker/dealer sector (^BKX) reveals a turning point for the investment banks where the index broke above a long-standing downtrend line and also the 50 day EMA. With leadership being shown by Goldman Sachs (GS), the revival of this vital sector could cause even more dislocation of the sector conflict strategies that worked so well for those hedge funds that have been playing the bearish side on equities for many months.


In last Friday’s commentary (and also when interviewed on CNBC Europe the same day) I commented that I felt that the technical condition of gold and the gold mining sector was weak and that I expected a significant correction. The gold mining index (^GOX) is now ratcheting down and the chart pattern looks distinctly bearish as a testing of the 160 level seems increasingly probable.

Also discussed last Friday was the likelihood that commodities were in the process of registering a lower double top than that seen during the Bear Stearns ambush in mid March. The performance of the Jim Rogers commodity index (^RCT) in coming sessions will provide a useful barometer for the kind of sector switching that is currently under way.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY APRIL 25, 2008



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

KGC  Kinross Gold Corporation (USA)  

Mentioned in Tuesday’s column Kinross Gold (KGC) has continued down since breaking below two key moving averages and could have returned fifteen percent since Tuesday’s open.



BVN  Compania de Minas Buenaventura SA  

Cited earlier this week BVN revealed a three candlestick formation last Friday - an evening star- which is quite reliably bearish in certain contexts. The stock was sold off aggressively in yesterday’s session as it dropped by almost nine percent.



GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) is showing the way forward for a recovery of the investment banking sector.



OSTK  Overstock.com Inc.  

Overstock.com (OSTK) appears to have consolidated its gains from late last week and a further leg up seems likely.



PLCM  Polycom Inc  

Polycom (PLCM) appears vulnerable to further weakness at the $23 level.

Daily Form April 24, 2008

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY APRIL 24, 2008       06:57 ET

Trading in US equities yesterday was unusually erratic with some stomach churning intraday volatility that may have delighted some traders but would also have stopped out many with some abrupt directional switches

Despite all of the fireworks the S&P 500 cash index (^SPC) produced yet another candlestick that was confined within the range of last Friday’s session. As the barrage of earnings reports continues it is not surprising that the underlying tone of the market remains nervous.


It is not only anxious central bankers and governments in the west that are doing their utmost to steer markets away from too much "downside volatility" but in similar fashion the Chinese government have backed down on a recently increased stamp tax to prevent what was beginning to look like a serious meltdown of their rather illiquid domestic exchange.

In my commentary for March 18, when the Shanghai index (^SSEC) was still above 3600, I suggested that the 3000 level looked like a realistic target and in Tuesday’s session this level was touched intraday.

It seems that the Chinese government was becoming anxious that they had been too effective previously when they had hiked a stamp tax on share transactions designed to cool surging stock prices. The reaction in today’s session must have been exactly what was wanted as an almost ten percent jump enabled the index to break above a steep downtrend that had been in place since January.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY APRIL 24, 2008



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

KGC  Kinross Gold Corporation (USA)  

Mentioned in Tuesday’s column Kinross Gold (KGC) has continued down since breaking below two key moving averages and would have returned more than eight percent since Tuesday’s open.



MBT  Mobile TeleSystems OJSC (ADR)  

Mobile TeleSystems (MBT) is approaching firm resistance within the context of a developing bear flag.



CCJ  Cameco Corporation (USA)  

Cameco Corporation (CCJ) could well find support at the convergence of two moving averages.



CMI  Cummins Inc.  

Cummins (CMI) is also developing a bullish flag pattern.



BA  Boeing Company The  

Last Friday Boeing Corp (BA) was cited as a classic bull flag in the making with the subdued volume during the pullback adding emphasis to the upward spike move on heavy volume that has been highlighted on the daily chart. The stock could have further to go, at least as far as the 200 day EMA, after better than expected earnings.



DOX  Amdocs Limited  

In accordance with the general qualifications for all suggestions made in this column, previous highs around $34 would seem to be a valid target for Amdocs (DOX) in coming sessions. I am always reluctant to try to call precise turning points and this is why the newsletter always carries the following notice that "None of these setups should be seen as specifically opportune for the current trading session."

Daily Form April 23, 2008

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY APRIL 23, 2008       05:24 ET

Equities retreated further yesterday but finished off their lows. For the S&P 500 (^SPC) the candlesticks registered in the last two sessions can both be "contained" within the long green candlestick from last Friday. As the broad indices are stalling many individual stocks are now poised within ascending wedge patterns and I suspect that it would only take a small catalyst to re-energize the bulls.


One sector fund that seems primed for a directional breakout is IGW which represents the semiconductors.

The Hang Seng Index (^HSI) has made steady upwards progress in recent sessions and is now firmly positioned above the 200 day EMA. Today’s close also places the index just above the 38% retracement level from the September 2007 high and the March low.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY APRIL 23, 2008



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

DRYS  Dryships  

Last week’s suggestion that "Dryships (DRYS) shows a breakout...with capacity for further immediate progress" was well rewarded in yesterday’s session.



D  Dominion Resources Inc.  

Dominion Resources (D) has pulled back on very light volume towards the convergence of all three moving averages.



TJX  The TJX Companies Inc.  

TJX still looks appealing on the short side.



PDLI  Protein Design Labs Inc  

Protein Design Labs (PDLI) is carving out a bullish flag pattern but may want to retreat a little further to the moving averages just below $13

Daily Form April 22, 2008

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY APRIL 22, 2008       03:57 ET

There was a rather lackluster attempt to get the bearish side up and running yesterday despite some earnings reports that were less than impressive. The tiny range doji star candlestick on the S&P 500 (^SPC) chart was also an inside formation and underlines the fact that the market is at a key inflection point . Positive chart dynamics are much in evidence but there is also inevitable hesitation from some traders that bullish follow through could well bring the short sellers back into the fray.


Volume for QQQQ, the exchange traded vehicle for the Nasdaq 100 (^NDX) slipped down to just two thirds of its average daily volume. The cash index itself managed to register a gain of 0.7% and remains above the 200 day EMA. Many of the index’s constituents are similarly poised at long term moving average hurdles but it needs to be said that if the bulls are going to seize the initiative provided by the ever obliging central bankers then we need to see soon volume picking up and convincing breakaway patterns.

The iShares S&P Global Technology fund has penetrated above its 200 day EMA and last week’s heavy volume session suggests that some large bets are being placed on the possibility of a new leadership initiative from the sector.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY APRIL 22, 2008



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

HNZ  HJ Heinz Co.  

Some weakness is appearing in consumer staples. The chart for Heinz (HNZ) is revealing negative MACD and MFI divergences after registering a lower double top formation. Kellogg (K) has a similar tone.



JEC  Jacobs Engineering Group  

Jacobs Engineering (JEC) continues to surge higher on expanding volume and seems to be targeting the previous high around $102



KGC  Kinross Gold Corporation (USA)  

Kinross Gold (KGC) broke below two key moving averages yesterday on above average volume.

Daily Form April 21, 2008

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY APRIL 21, 2008       06:00 ET

Friday’s trading proceeded very much in line with the hypothesis that large write-downs by the banks (i.e. Citigroup in this instance) are now seen as cues for opportunistic traders to exit their short trades in the financial sector. The rally before the open on Friday had all of the characteristics of short covering, especially within the European session prior to the New York open.

The S&P 500 cash index (^SPC) moved up 1.8% and is now approaching the 1400 level and the 200 day EMA. One divergence that caught my attention was the discrepancy between the behavior of the cash index and the exchanged traded instrument, SPY. The ETF opened almost on its high for the session but concluded below its enthusiastic start, rendering a red candlestick, and the volume was only marginally above average. We saw the break above the 200 day EMA on the S&P 400 Midcap index that I expected but several other indices have to now validate this ostensibly positive development.


The Nasdaq 100 (^NDX) gapped up on the open and left an island formation that straddles the 200 day EMA.

Along with many global indices the UK’s FTSE 100 (^FTSE) now confronts clear chart hurdles and the 200 day EMA. In Friday’s session Germany’s DAX index produced one of the better performances of the day as it moved ahead by 2.4% and broke above the critical 6800 level. A useful metric for assessing the recent relative under-performance of the German index is the fact that it still has another 300 points to cover before it encounters its 200 day EMA.

The liquidation of long Treasury holdings and the waning of the safe haven mindset continued in early trading on Friday but, as expected, buying interest emerged as the thirty year bond approached the 4.6% yield. I suspect we will have more probing of the upside potential for yields in coming sessions, but it will require an even more profound change of sentiment in the market to see yields break above 4.75%

TRADE OPPORTUNITIES/SETUPS FOR MONDAY APRIL 21, 2008



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

DO  Diamond Offshore Drilling Inc.  

Early last week Diamond Offshore Drilling (DO) was cited as a good example of one of my favorite patterns - the upward wedge pattern - and the remainder of the week produced generous returns.



GS  The Goldman Sachs Group Inc.  

The chart for Goldman Sachs (GS) appears ready to break out of an ascending wedge pattern.



INTC  Intel Corporation  

Intel (INTC) remains in a constricted range and, despite last week’s upbeat earnings report, the extended channel has remained intact. If the bulls are to take control of proceedings one would expect to see a little more dynamism from stocks such as Intel.



BVN  Compania de Minas Buenaventura SA  

BVN performed well for us on the short side in early April and the three candlestick formation from last Friday - an evening star- could be pointing to further weakness.

Daily Form April 18, 2008

CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC"s EUROPEAN CLOSING BELL TODAY

TRADE WITH FORM
Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY APRIL 18, 2008       07:24 ET

I have focused a lot this week on the chart for the S&P 400 Midcap index (^MID) because, for me at least, it is revealing the currently critical posture of US equities more clearly than the other indices. The big move up this week has re-qualified the April 1st breakout above the downward trendline through the highs since last December.

As noted yesterday the index rallied right up to its 200 day EMA, which most other broad indices in the US are still some distance from. There was a pause in yesterday’s action (a hanging man candlestick) but going forward the index is now boxed in to a range between the 50 day EMA and the 200 day EMA, and at such an inflection point, that the market cannot much longer postpone which way the breakout is going to come.


The cross currents visible in chart patterns of a wide range of different asset classes, part of the re-allocation process that was discussed yesterday and which is manifestly underway at present, appears to be reaching a turning point. The strength in the energy sector and across the commodities is pushing some markets towards their limits.

The Jim Rogers Commodity Index Index is the most diverse of the commodity indices being calculated from 35 commodities from eleven international exchanges. The index is now approaching the peak levels seen during the Bear Stearns crisis in mid March and those hedge funds that are loading up again on commodities may be hoping that another ambush for the equity bulls has been set. The question for which I sense we are about to get our answer soon is - which has the most capacity to surprise at this point - another sell-off in equities or a big rush to the exits from energy and other industrial commodities by over leveraged hedge funds?

One of the charts that I intend to discuss this afternoon on CNBC’s European Closing Bell measures the relative performance of several global assets since the onset of the so-called "credit crunch" that went into overdrive last August. Although there are inevitably simplifying assumptions in using such a broad brush approach, one of the more striking impressions is the incongruous behavior between the strength in the commodities and the bearish performance of the Shanghai market. Also, when placed in context, the gyrations of the S&P 500 seem remarkably subdued when compared to the volatility being experienced by hedge funds that have exposure to these other asset classes.

The exchange traded fund that tracks the price of gold is revealing clearly discernible, negative volume characteristics. The pattern is beginning to take on the form of a downward staircase that drops another step when the flag formations have run their course. The volume chart clearly shows that volume is accelerating on the downward moves and retreating noticeably during the recovery attempts.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY APRIL 18, 2008



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

NOK  Nokia Corporation (ADR)  

Yesterday’s statements from Nokia (NOK), which has been a long standing favorite for fund managers, proved to be just a little too "realistic" in terms of the outlook.

The stock was clobbered when the company stated some obvious concerns about the likelihood of slowing global sales and the competitive threat from the iPhone. Both of these should hardly have been big surprises and according to the conventional wisdom they should already have been "discounted" by the market.

Although the "smart money", according to some pundits, has been recently showing an uncanny foresight in already discounting the impact of the recession and all of the writedowns from mortgage backed securities, it seems to have missed this one. The stock found support at the March lows and a pullback towards the $32 level seems probable.



XLB  SPDR Materials Select Sector  

XLB, the Spider fund for the Material sector, reached a strong resistance level at the top of its range and above the 50 day upper volatility band. The chart formation underlines the rather critical levels that industrial commodities and global infrastructure plays have reached.



BA  Boeing Company The  

Boeing Corp (BA) has a classic bull flag in the making with the subdued volume during the pullback which adds emphasis to upward spike move from last week.



SEPR  Sepracor Inc.  

Sepracor (SEPR) along with Boeing has the required characteristics for potentially more bullish behavior following the recent pullback.