Daily Form July 15, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JULY 15, 2008       06:30 ET

Many analysts are waiting for the capitulation event which, when (and if) it comes, should be associated with a large spike on the CBOE Volatility Index (^VIX). Yesterday’s trading did not, from the broad market perspective, have the characteristics of any kind of climactic session but the carnage in the financial sector is getting more dire with each new revelation of the extent of possible insolvencies. In some ways the slow motion crash taking place amongst the banks and financials is more unsettling than a full blown capitulation episode.

I shall be watching for a move up to the March 2007 levels on the VIX and a testing of the 10,750 area on the DJIA in coming sessions.

The relentless selling of financials suggests that some fund managers are being slow to accept the severity of the financial turmoil. Investment banks are being shorted heavily and those fund managers that are finally acknowledging the changed financial landscape are finding an almost complete absence of bids.

The broker/dealer index (^XBD) dropped almost 5% yesterday as it continues its almost uninterrupted decline since mid June.

The Oil Services Index (^OSX) has pulled back to overhead resistance from two key moving averages.

The regional banks were the big casualty yesterday and the specter of bank runs is sure to be spooking the FDIC and the Fed. As if to underline the very fragile situation that I alluded to in yesterday’s commentary the Euro has pierced above the $1.60 level in European trading on Tuesday morning,


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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SCHN  Schnitzer Steel Industries Inc  

Schnitzer Steel (SCHN) looks vulnerable and any rally would provide a more attractive entry opportunity on the short side.

SLV  iShares Silver Trust  

The exchange traded fund for Silver, SLV, seems now to be on course for the $200 level and beyond.

XOP  SPDR S and P Oil & Gas Exploration and Prod   

XOP, the exchange traded fund that is derived from the oil and gas exploration and production portion of the S&P Total Market index, has a well defined bear flag and reveals clearly the negative divergences during June.