Trade Ideas for 10/20/08

Right now classic charting and Elliott Wave analysis are at odds with one another. Under classic charting, risk is to the downside. Long-term trends are down, and the (tall) symmetrical triangle that formed last week shall most likely break in the direction of the long-term trend. The only bullish timeframe is short-term, as the 5-day moving average has turned upward. In contrast, my Elliott Wave analysis suggests that we have just completed the first wave off the lows, tested those lows (thus completing the second wave) and are now beginning a steady advance. Thus, risk under EWave is to the upside.

Under the latter interpretation of the charts, it's interesting to note that sentiment seems to have shifted from fear-striken selling to a cautious sense of bargain-hunting. My best friend points out the parallels between Buffett's sudden cheerleading and that of the Rockefellers soon after the crash of 1929. Indeed, after crashing in October of 1929, the Dow rallied into mid-1930 before collapsing further.

Friday turned out to be a consolidation day rather than a continuation day, which set up charts in the financial sector, particularly regional banks, very nicely. By the same token, Friday's consolidation could portend further downside, as implied by the classical charting interpretation. In case my read is incorrect (and there is further downside up ahead in the near term), get out on breach of last Friday's lows, if not this past Thursday's.

Current Holdings
Ticker	Basis	Closing Price	Perf.	Sell-Stop	Additional Exit Guideline	Chart
FORM	18.46	16.92	-8.3%	15.43	Consider selling if unable to break through 18.20 by close	Chart
RIMM	62.38	59.01	-5.4%	52.49	None	Chart
WB	5.21	5.97	+14.6%	5.61	Consider selling if unable to break through 6.46 by close	Chart
IPHS	21.51	21.77	+1.2%	18.49	None	Chart
SVVS	8.06	7.70	-4.5%	6.77	Consider selling on a close < 6.99	Chart

Many charts are setting up for Monday. While risk remains high, strong price action would give me some assurance that higher prices are ahead. That's why we buy on a breakout rather than a pullback. Don't forget that breakout failures are more common at open than later in the day, so make sure to enter these after the open if possible.

Trade Ideas for 10/20/08

Ticker	Entry	Exit A	Exit C	Chart
SPR (Spirit Aerosystems)	14.01	12.57	11.59	Chart
IAT (Regional Banks ETF)	30.06	28.43	26.99	Chart
CPST (Capstone Turbine)	1.46	1.29	1.24	Chart
FDO (Family Dollar)	25.61	24.24	23.14	Chart

Please refer to "How To Trade The Ideas" (right-hand side) to read this table.