Daily Form September 11, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY SEPTEMBER 11, 2008       06:13 ET

Reviewing charts today I was struck by the number of inside day patterns on individual stocks as well as sector funds. The market’s digestion of the Lehman news was fairly muted and I have the sense that the market is preparing for a directional breakaway move.

The chart for the Nasdaq Composite (^IXIC) reveals the inside day pattern in the vicinity of the 2008 lows and as I discussed during a TV appearance yesterday the tech stocks have relinquished their claim to any leadership role for the bulls. It remains to be seen whether they will now lead us downwards.

Trading in Asia on Thursday was pretty grim with the Hang Seng Index (^HSI) dropping more than 3% and falling decisively below the 20,000 level. The pattern that I have marked on the chart illustrates a downward wedge pattern breakdown. This is what I am also seeing on many other global index charts and is, I would suggest, clear evidence of the deleveraging process that is taking place as hedge funds are being forced to reduce their risk exposure and facing client redemptions.


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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OIH  Oil Services HOLDRS  

I am looking at those ETF’s that are showing interesting money flow characteristics as this is definitely a market where the large funds are actively engaged in sector rotation strategies. Although there is nothing very revealing in the price pattern I would suggest keeping an eye on OIH which tracks the oil services sector as it appears to be sold out.

SJF  Ultra Short Russell 1000 Value ProShares  

The Ultra Short funds have been very rewarding recently and the price and volume action in SJF which is an inverse leveraged play on the Russell 1000 Value index suggests that some sizable bearish bets are being made here.