Daily Form September 17, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY SEPTEMBER 17, 2007       06:48 ET

In Friday’s trading the S&P 500 (^SPC) explored lower prices but came to rest more or less where it had started the session. There may be a continuation of this theme in today’s trading as the markets brace themselves for tomorrow’s FOMC decision.

As this is being written the European markets are still digesting the fall out from the Bank of England’s bail out of Northern Rock which received an enormous amount of coverage in the UK press and television over the weekend. Live television coverage of irate customers lined up outside branches of the bank are not the kind of thing that central bankers and politicians want to see, and all of the upbeat talk from commentators about how the "fundamentals" of the bank are totally sound seems just to be stretching the credibility gap even further.

Whether this will be a catalyst for further financial contagion remains to be seen.

The gold and silver index (^XAU) faces a real challenge as it has returned to the level seen in mid July, and, with the metal itself possibly poised to test the May 2006 levels, it will be useful to keep the gold mining stocks on the radar screen this week. As just commented with talk about a run on banks in the popular press this would seem to be supportive of the safe haven thesis but, alas, the metal has disappointed several times before in this context.

One sector which looks constructive and should benefit from the likely FOMC easing is for the utilities where the declining competition from Treasury yields should provide a strong counter argument to concerns about a slowing economy.


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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AU  AngloGold Ashanti Limited (ADR)  

AngloGold (AU) registered a shooting star/spinning top candlestick in Friday’s trading which points to the fact that it is meeting overhead resistance at the previous recent high from mid July. A scenario that I favor is that we may see a retreat in the mining stocks and the metal in the short term but a recovery rally back to the mid July and current levels again in the intermediate term. I would not be surprised to see signs of an upward breakout for both the mining stocks and the metal towards the end of the year.

KR  The Kroger Co.  

Kroger (KR) moved above all three moving averages on above average volume in Friday’s trading and is now poised for a possible move up to the $29 level, but it has to surmount a declining trend line through the highs that stretch back to early June.

INTC  Intel Corporation  

Intel Corporation (INTC) has been acting poorly in recent sessions and I shall be watching this week to see whether the erosion continues or whether the slide attracts the growing legion of asset managers singing the praises of the technology stocks.

YHOO  Yahoo Inc.  

Last week’s recommendation on a long position for Yahoo (YHOO) paid off in Friday’s session and the chart pattern suggests that further gains may lie ahead.

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