Daily Form November 16, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY NOVEMBER 16, 2007       03:12 ET

The question that I would expect to linger beyond today’s session is whether the markets are simply performing a re-test of last Thursday’s low or are gearing up for a new substantial leg down. As always I shall be monitoring the price action on the Russell 2000 index (^RUT) which as far as the pattern following yesterday’s trading is concerned leaves us guessing as to the possible near term direction. The pattern still could be seen as one of slightly higher intraday lows that may suggest that a retest may already have been made but stepping back to review the bigger picture the chart pattern looks troublesome for the bulls.

Yields on treasury notes are continuing to move lower and the floor around 4.4% has been decidedly broken and we should now expect further moves down to the next potential floor at 4%. There is no doubt that many traders are now becoming convinced about the likelihood of a serious slowing of economic vitality in the global economy.

On this theme yesterday’s discussion about the weakness in the industrial materials sector and the vulnerability of the sector fund XLB proved to be timely as the fund dropped down by 2.2% on substantially increased volume.

More evidence to keep us guessing about the retest of recent lows is to be found on the Nikkei 225 index (^N225) which closed Friday’s session just above Tuesday’s low and there is at least the suggestion of slightly higher intraday lows. Having said that the pattern looks as though traders are waiting for further cues from action in the US today and it must be said that the overall formation hardly looks inspiring for the bullish case.


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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The energy sector fund, XLE, reveals very noticeable negative divergences in momentum and the 200 day EMA seems like a probable intermediate term target.

FNM  Fannie Mae  

The weekly chart for Fannie Mae (FNM) shows that after yesterday’s ten percent fall there will need to be a test of the October 2005 low.

BEN  Franklin Resources  

We noted yesterday that asset management company Franklin Resources (BEN) faced a strong hurdle at the convergence of all three moving averages. The stock sold off by almost five percent on twice the average daily volume and may need to probe for meaningful support at lower price levels.

BAC  Bank of America Corporation  

Returning to the theme of whether the most recent price action is just the market going through the motions of a re-test of last week’s low or something more serious, the chart for Bank of America (BAC) could be offering a more encouraging reading for the bulls.

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