Daily Form July 23, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JULY 23, 2008       06:25 ET

Asset re-allocation decisions are inspiring tectonic shifts in the inter-market strategies being followed by the large hedge funds and trading desks. Equities, and specifically financials are becoming the recipients of capital flows that are fleeing a whole range of commodities and the forex market yesterday tipped us off to a significant re-thinking of dollar direction.

The hourly chart for the Euro/USD shows how during midday trading in New York yesterday selling hit the Euro at the 1.5930 level and this lead to a quick drop down to the 1.5780 area. The decline has extended into European trading this morning.

If the Euro loses its grip at the 1.5840 level on any rebound, this could send us down to the bottom of the longer term trading range between 1.55 and 1.56. The implication here is that further downside in the Euro would suggest that the rally in equities and the exodus from the energy sector and other commodities could have further to run.


The Russell 2000 (^RUT) outpaced the rest of the market yesterday with a 2.8% gain. Price action over the last two weeks has validated the early warning hypothesis advanced here that when the index bounced at the 660 level this was a precursor to a turning of the tide for larger cap stocks as well. The extent of the recovery in the financials has been more dramatic than many were expecting (including me) and serves to highlight just how much of a doomsday scenario was being discounted earlier in July.

Large drops in the CBOE Volatility Index (VIX), including yesterday’s drop below the 200 day EMA, underlines the remarkable dissipation of fear that has taken place in the last week.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JULY 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

DBA  PowerShares DB Agriculture  

DBA, an exchange traded fund which tracks agricultural commodities, has seen a precipitous descent but is reaching an area where some support may arise at the 200 day EMA.



EPEX  Edge Petroleum Corp  

The chart for Edge Petroleum (EPEX) reveals a bullish flag pattern in the making, but the failure in early July after the extended rising channel that preceded it suggests that any upward progress may be short lived.

Daily Form July 22, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JULY 22, 2008       06:11 ET

The Dow Jones Industrials (^DJI) is currently in a zone between the 50% and the 38% retracement of the March 2003-October 2007 swing high/low. Last week the index sank below the 10800 level intraday (A) and, as it now appears, this may have marked an important intermediate term low. In yesterday’s trading the index found resistance at the 11650 level (B) which not only marks the 38% retracement level but also the region of the mid March lows as well.

Overall breadth is improving although the degree of short covering in certain sectors of the market, resulting in some spectacular gains over the last week, may be partially obscuring the fact that there has been a shift to more positive overall dynamics for equities.


The Dow Jones Utilities (^DJU) looks to be one of the least technically favorable sectors of the market at present. A bear flag is emerging on the daily chart and there will be stiff overhead resistance from the intersection of all three moving averages in the region of 510.

The Amex Pharmaceutical Index (^DRG) has a constructive cup and handle pattern and if the index can break above the horizontal resistance line at 310 marked on the chart, which also more or less coincides with the 200 day EMA, this sector could see much higher prices ahead.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JULY 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

RKH  Regional Bank HOLDRS  

The exchange traded fund for the regional banks has been one of the main beneficiaries of the febrile short covering in the financial sector. The fund has gained more than 25% in the last week but is now entering a chart area where those who have been squeezing the shorts may decide to pause and consolidate.



FNM  Fannie Mae  

One of the most extraordinary charts is for Fannie Mae (FNM) which yesterday registered a shooting star after hitting resistance in the vicinity of the mid March low. This stock has doubled in the last week but the rather counter intuitive nature of the maths belies the fact that this stock is still trading at only 20% of its all time highest close.

I prefer to admire the chart rather than stake any trading capital in trying to guess which way this goes next.



XLF  Financial Select Sector SPDR  

XLF has gained 20% in the last week but the short covering may now take a pause at an area of upside resistance.



FRX  Forest Laboratories Inc.  

One of the better looking charts on the long side is for Forest Labs (FRX) where the pattern echoes the formation seen on the Pharmaceutical index.