Daily Form August 29, 2008

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FRIDAY AUGUST 29, 2008       06:36 ET

Light volume persists but yesterday’s rally was still impressive. The Russell 2000 (^RUT) has made substantial progress since Monday’s sell off and appears ready to take on again the rally highs from earlier in August.

As discussed yesterday morning during a chart analysis slot on CNBC the technicals are becoming more favorable but I would be looking for follow through volume when trading resumes after the Labor Day break to validate any break above 760.


The 1320 target for the S&P 500 (^SPX) coincides with the 50% retracement level and becomes key target in the short term. The real test as to whether this current move is more than a bear market rally will arise as we approach the 1350 level.

The banking index (^BKX) still has some work to do to convince me that it is capable of breaking out of the triangular formation.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY AUGUST 29, 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.
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GLD  streetTRACKS Gold Trust  

GLD, the exchange traded fund for gold should make further progress towards $85 but previous support may now well become a level that attracts short sellers.



XOP  SPDR Oil and Gas Exploration  

XOP, the exchange traded fund that tracks oil and gas exploration registered a rather bearish hanging man candlestick pattern yesterday as it attempted to rise beyond moving average resistance. The sector opened on its high for the day and saw price rejection on a pick up in volume.

Daily Form August 28, 2008

CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC's POWER LUNCH EUROPE TODAY

Profit Patterns and Risk Management For Active Traders
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THURSDAY AUGUST 28, 2008       02:59 ET

The Russell 2000 (^RUT) has performed pretty much in line with my expectations recently as a retreat to the pivotal 720 level seems to have resolved itself in favor of another move back to 760.

There are some clear parallels between the two rally failures that culminated in points A and B. Having retreated to, and tested quite convincingly the 720 level in Monday’s session, there is now evidence that the parallel patterns are deviating as the index appears to have reversed quite abruptly and be headed towards a re-test of the level seen at point B.

If, as seems very likely, the 50 day EMA moves above the 200 day EMA on this re-test and if the break is not a fake move on light volume this would be a very encouraging development for the bulls.


The euro is consolidating at previous chart support levels near $1.47 and there may be some follow through recovery as some pundits are suggesting that comments by two ECB governors about the need to keep a tightening bias on short term rates in the euro-zone should be taken seriously. The economic prospects for many of the major European economies are fading fast and I would be surprised to see the euro make it any further than $1.52/1.53.

The UK economy, which is not part of the euro-zone, is fading even more seriously than many of its continental partners and this suggests further weakening of sterling in the cross rate with the euro.

The chart for the Gold mining stocks (GOX)has some similarities with the chart for the euro and in line with my views on the currency I would see the 170 level as a key hurdle for this index.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY AUGUST 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

XME  SPDR Metals and Mining ETF  

The SPDR Metals and Mining sector fund, XME, has been moving downwards in a staircase fashion since the critical trend line break in early July and leg 3 of the bearish pattern could soon be reaching another inflection point.



TSO  Tesoro Corporation  

Sometimes chart patterns produce signals that take some time to deliver on their promise. Ten day ago I noted that Tesoro (TSO) had registered a tiny doji/NR7 pattern which is often seen ahead of a decisive move. The stock had meandered for several sessions but in yesterday’s trading there was an eleven percent up move on very substantial volume confirming the positive divergences on the MACD chart.



EFU  Ultra Short MSCI EAFE Index ProShares  

The Ultra Short ETF’s pose certain challenges for chart analysis as the normal symmetry that would allow one to transfer inverse patterns that are applicable on the long side can be error prone. I feel a little more confident that the chart below for the Ultra Short fund for the MSCI EAFE index, EFU, is pointing to a fairly clear case of a negative divergence at a top. Moreover this prognosis appears to be in harmony with the interpretation that one would give to EFA which is the long version of the same index (although the long fund does not include the 2:1 leverage of the short version).

Daily Form August 27, 2008

Profit Patterns and Risk Management For Active Traders
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WEDNESDAY AUGUST 27, 2008       07:03 ET

Yesterday’s session can best be characterized as one of low volume and featureless trading which brought little new indication as to future direction. Reviewing many charts this morning there are so many stocks and sector funds that are sitting at or near to their 200 day moving averages and have been moving sideways for most of August. There are many patterns that are doing their best to suggest that some kind of basing is under way but because of the lackluster volume of recent sessions one has to take a wait and see approach on the question of whether the underlying market dynamics have turned more bullish in the long term.

The Nasdaq 100 (^NDX) typifies the indecisive nature of the market with the doji start astride the 200 day EMA. A similar pattern can also be seen on the Russell 2000 chart. One risk in the current environment is that we might easily see a false directional break in coming days which will then reverse when the volume starts to resume in September.


The Amex Natural Gas index (^XNG) is moving up towards resistance of two key moving averages.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY AUGUST 27, 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

MCD  McDonald's Corporation  

McDonalds (MCD) would seem to be attractive on the long side near to the $60 level.



BRCM  Broadcom Corporation  

Broadcom (BRCM) could be vulnerable to further selling after slipping away from a recovery channel and with volume increasing as range is expanding on the downside.



EEM  iShares MSCI Emerging Markets Index  

One chart which well exemplifies the very low volume behavior at present is for the sector fund EEM which reflects the MSCI Emerging Markets Index. The lack of buying interest in the fund keeps me somewhat dubious that one should be too encouraged by the apparent basing pattern.

Daily Form August 26, 2008

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TUESDAY AUGUST 26, 2008       07:12 ET

For those of a bullish persuasion there may be some comfort to be drawn from the fact that yesterday’s rather sharp sell off in the US market was accompanied by the unsurprisingly light volume of the last Monday in August.

The Russell 2000 (^RUT) produced exactly the testing of the 720 level that I discussed last week and fell relatively further than other broad indices.

This index now confronts a potential break of the upward slanting trendline since mid July and is also confined above by the potential double top pattern. As we move into September the conviction of those who have been steadily accumulating in the small cap sector since March will continue to be tested by the erratic outlook for the financial sector. Unless the Russell 2000 provides clear evidence of a breakdown in coming sessions I would remain moderately positive about US equities in the near term but want to re-evaluate that outlook if and when this index tries to rally back above 760.


The CBOE Volatility Index (^VIX) remains within a downward channel since the mid July low but a clear break above the 22 level, at which the moving averages intersect, would suggest that institutional managers are still not convinced that the worst of the financial mess has been seen.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY AUGUST 26, 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

AMGN  Amgen Inc.  

Amgen (AMGN) appears to be defying gravity at current levels.



DBA  PowerShares DB Agriculture  

The exchange traded fund, DBA, allows participation on the long side in various agricultural futures contracts and the recent chart action shows that, despite a temporary break below the 200 day EMA, there appear to be more constructive chart dynamics emerging.



FXP  Ultra Short FTSE-Xinhua China 25 Proshare  

FXP is an inverse leverage fund that would profit from further weakness in the Chinese market. Some recent analysis of applying standard technical pattern analysis to these Ultra Short funds suggests that one has to be relatively cautious in following signals that are reasonably reliable with long sector funds to inverse funds.

In addition the leverage of two to one would keep me on the sidelines at present but a break above the recent high just below 100 would suggest that the highs seen in March could be back in play.



MER  Merrill Lynch and Co. Inc.  

From a technical perspective Merrill Lynch (MER) is in a basing pattern and there is some evidence of accumulation with positive MFI divergences.

Daily Form August 20, 2008

Profit Patterns and Risk Management For Active Traders
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WEDNESDAY AUGUST 20, 2008       07:31 ET

The current preoccupation for many traders is whether the turning point in the financial services on heavy volume in mid July marked a real base for the sector or not. As the chart below for the XLF fund shows there was a major inflow of capital to the sector on and around July 15th and the recent retreat, including that seen yesterday, has not been accompanied by such substantial volume. Nevertheless, perhaps taking the cue from some gloomy prognostications from a former Federal Reserve governor who predicted that a "whopper" investment bank in the US was sure to fail and negative reports about Lehman Brothers (yet again), traders on the short side, especially the large hedge funds, took another swipe at all of the usual suspects.

What is hard to estimate is just how much of a doomsday scenario is already priced into companies like Merrill Lynch (MER), Citigroup (C) and the regional banks (RKH). I suspect that we will find out fairly soon whether July 15th did in fact mark a major inflection point for the sector. A very heavy volume session with shorts scrambling to cover as we approach the $18 level on the XLF chart could signify the market’s belief that, no matter what new major surprises there are in store for the banks, the Fed and US government, as well as strategic global holders of dollar assets, will continue to remind investors of the fact that there is an implicit public sector underwriting of private sector liabilities in the financial system.


The VIX underlines the fact that there is far less fear in the market of any imminent financial collapse than there was in March and even in early July.

The investment banking index (^XBD) has broken below an important trend-line suggesting lower prices ahead, but in line with previous commentary the suggestion is that the decline may be more orderly and persistent rather than climactic.

The FTSE 100 index (^FTSE) suffered relatively more in yesterday’s decline and the break below a key trendline which now points to a re-test of the July low and also continuing under-performance for the UK index.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY AUGUST 20, 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

PPH  Pharmaceutical HOLDRS  

PPH, an ETF that tracks the pharmaceuticals is flashing a buy signal from pattern recognition algorithms and the recent pullback has been on very light volume.



IGV  iShares Software ETF  

Another sector fund that I would favor on the long side after a further pullback is IGV which tracks equities in North American Technology and Software

Daily Form August 19, 2008

Profit Patterns and Risk Management For Active Traders
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TUESDAY AUGUST 19, 2008       06:43 ET

As anticipated in yesterday’s commentary the Russell 2000 (^RUT) faced a stiff hurdle at the June high and has begun a pullback that could take the cash index back towards the pivotal level about twenty points below yesterday’s close.

The hourly chart for the exchange traded proxy, IWM, shows quite clearly the price rejection that occurred in Friday’s trading just below the June 6 high and also shows that the 200 hour EMA lies at the equivalent to the 720 area on the cash index.


The Nasdaq 100 (^NDX) which had previously retraced 62% of its move from its late October high to the March low is now stalling at the 50% retracement level. There is however strong moving average support in the region of 1900.

The KBW banking index (^BKX) reveals a pattern that looks suspiciously like a failed bullish wedge pattern. With all of the recent shenanigans in the trading of the financials I would wait for further confirmation before getting on the short side of the banks.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY AUGUST 19, 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

IBB  iShares Nasdaq Biotechnology  

The exchange traded fund IBB which tracks the biotech sector is revealing negative divergences on the MACD and MFI charts.



SLB  Schlumberger Limited  

Schlumberger (SLB) appears to have lost contention with the 200 day EMA and could be headed down towards a test of lower levels seen earlier this year. The MACD chart also reveals that this stock was showing non-confirmation in momentum despite reaching higher price levels in late June and a distribution top seems to be in place.



SPLS  Staples Inc.  

Staples (SPLS) could resume its upward bias after retreating to the $24 level.

Daily Form August 18, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY AUGUST 18, 2008       06:07 ET

Sometimes financial markets are relatively easier to trade than at other times as trends and inter-market strategies become quite transparent. Since it became apparent that the commodity "bubble" was starting to deflate in mid July and after the ECB confirmed in its early August statement the market’s own interpretation that the Euro was topping out and that a major dollar rally was getting under way, the direction of many asset classes, especially the currencies and crude, has been quite predictable.

The situation with US equities has been less easy to discern but the Russell 2000 (^RUT) has continued to reward on the long side. In Friday’s trading the index has returned to the early June high and it would not be surprising to see some consolidation on this index near current levels.


The S&P 500 (^SPC) has almost attained the 1320 level which represents the 50% retracement of the high from mid May and the low from early July. Looking further out towards the 1350 level, the bullish momentum will need to gather some pace to take out the 62% retracement level.

One of the best recent trades has been on the short side for sterling as discussed here several times in the last few weeks. The $1.85 level shows chart support but longer term, as revealed on the weekly chart, it would not be surprising to see the British currency heading towards the $1.70 level.

The price of gold has been dropping rapidly in tandem with the strong showing of the US dollar. The chart below suggests that the CBOE Gold Index (^GOX) could be setting up for a testing of the 120 level which suggests further downside potential for both the metal itself and the gold mining stocks.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY AUGUST 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

WYE  Wyeth  

The recovery in Wyeth (WYE) appears to be running into resistance.



Q  Qwest Communications International Inc.  

Qwest Communications (Q) shows intermediate term positive MACD divergences and a bullish short term flag pattern.



TSO  Tesoro Corporation  

Tesoro (TSO) appears to be in an intermediate term basing pattern but the near term direction is less clear, although Friday’s tiny doji/NR7 pattern is often seen ahead of a decisive move.



CSCO  Cisco Systems Inc.  

Friday’s action for Cisco Systems (CSCO) shows a shooting star pattern exactly at the 200 day EMA level.

Daily Form August 7, 2008

Profit Patterns and Risk Management For Active Traders
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THURSDAY AUGUST 7, 2008       06:56 ET

Helping to drive the rally in equities are the twin (and related) forces of declining commodity prices and the newly energized dollar. Yesterday I noted the intraday pattern seen in early European trading which showed the US currency breaking above resistance against the yen and it went on to record further strong gains in the US trading session allowing the dollar to record its strongest close against the yen since early January.

Also mentioned here in several recent commentaries, sterling is now facing a bearish looking pattern as it moves into the apex of a descending wedge pattern. On the daily chart the $1.9750 level now seems to be a key barrier and any rally above it would I suspect provide an excellent selling opportunity. Downside targets around $1.90 are now in play.

I shall be taking some time off to recharge the batteries and will return on August 18th.


Further illustrating the new found dynamism of the US dollar is the daily chart below for the the Canadian dollar. The selling could be a little overdone in the near term but the chart points to a clear turning of the tide for this cross rate.

The Australian dollar has tumbled precipitously in recent sessions and although the 200 day moving average did not check the decline there is some chart support in the vicinity of yesterday’s close.

Exchange traded funds provide liquid instruments for taking positions in all of the major currency rates mentioned including FXA which tracks the Aussie dollar.

QQQQ has to confront the convergence of the 20 and the 200 day EMA at current levels which may prove to be a short term obstacle. A more important test lies at the $48.50 level which, following the late May/early June high, proved to be a difficult hurdle to recovery efforts, and this level also coincides with the upper 40 day Bollinger band.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY AUGUST 7, 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

XLV  Health Care Select Sector SPDR  

Confirming the upward breakout in the health care sector, XLV, yesterday’s continuation pattern was on twice the average daily volume. The sector has broken decisively through 200 day moving average resistance and upside targets around $36 now seem attainable.



FRX  Forest Laboratories Inc.  

Forest Labs (FRX) shows the kind of pattern that is seen on a number of charts in the health care/pharmaceuticals sector.



BRCM  Broadcom Corporation  

Earlier this week it was noted that Broadcom (BRCM) faces stiff overhead resistance at the conjunction of all three moving averages. The bearish flag formation has evolved further and yesterday’s doji star/spinning top pattern on reduced volume could mark the turning point.



GHL  Greenhill and Co Inc.  

Greenhill (GHL) has a horizontal version of the bullish flag/consolidation pattern just above the 200 day EMA.