Daily Form March 18, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY MARCH 18, 2008       03:50 ET

The S&P 500 (^SPC) managed to contain its losses to less than one percent in, even by recent form, an unusually tumultuous session. The sentiment across the markets went through phases of fear and trembling that Bear Stearns could not be an isolated case to waves of semi euphoria that this might just be the kind of event from which an inflection bottom could arise.

While traders may be disappointed if the Fed fails to deliver at least 75 basis points today, many are now expecting it to be 100 bps, there are increasingly disturbing developments in China where the central government is preparing to hike rates to ward off inflationary pressures. Diverging from the Nikkei in overnight trading the Shanghai Exchange (^SSEC) and the affiliated Hang Seng Index (^HSI) are still in firm downward trajectories. The Shanghai index closed with a four percent decline and after peeking above the 6000 level in October now seems to be headed towards the 3000 level.

The DAX index in Germany (^GDAXI) was one of the weakest markets in European trading yesterday. In fact the SMI in Switzerland outpaced it on the downside with a more than five percent drop which can le largely attributed to a rout in the shares of UBS.

The DAX lost 4.2% and closed more or less on its intraday low. It will now face stiff resistance on the rebound at the 6430 level which provided support throughout last week’s buffeting.

London’s FTSE also suffered with an almost four percent decline and one of the contributory factors was an almost 10% decline for Barclays which had been an owner of a substantial stake in the equity of Bear Stearns. But the story that is concerning many is the plight of sterling, which reached record lows against the euro yesterday, and a fear that international capital flows may be steering clear of the UK because of the strong parallels between structural issues in its economy and those now causing havoc in the US.

One of the main supports for the UK economy, and super inflated London residential real estate, has been the inflow of funds as footloose wealthy individuals from Russia, Asia and the Middle East, after shopping around for the most favorable tax regime have, until very recently, reached the conclusion that the UK is the world’s most desirable onshore tax haven. In another instance of how fiscal and monetary policy has now become captive to propping up the capital markets the government of Gordon Brown is having to take a more conciliatory tone to the non-domiciled "residents" as capital flight from sterling and a property crash in London would see the UK enter a vicious downward spiral.

Despite the sea change in Fed policy which allows investment banks to gain liquidity for their arcane financial instruments the broker/dealer index (^XBD) still slumped by more than 10% yesterday.

One of the real problems for the sector is that with the securitization business almost dead and buried a major earnings stream has now dried up. Traders are discounting a slump in future earnings as much as selling because of concerns about liquidity implosions.


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

LEH  Lehman Brothers Holdings Inc.  

The stock for Lehman Brothers (LEH) yesterday reminds me of a scary bungee jumping experience. Reports emerged during the session that some financial institutions were instructing traders not to engage in counter-party risk with Lehman and the stock looked as though it was on the verge of freefall. More than 220 million shares were traded and, it is a sign of the times, that an investment bank which lost more than 20% in just one session was being reported by some observers as having had a "relatively good day".

MNTA  Momenta Pharmaceuticals Inc  

Momenta Pharmaceuticals (MNTA) has a complex and unorthodox pullback pattern but it still appears that the buying surge on February 29th will see some follow through.