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.


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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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.