Daily Form June 6, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JUNE 6, 2007       06:05 ET

The comments yesterday from Fed Chairman Bernanke only served to underline the growing dissonance between the expectations held by some equity traders and institutional investors of a more accomodating policy on short rates and the continuing back up in long yields.

Despite the market’s obvious resilience and the lack of a vigorous committment by those of a bearish persuasion to really test the downside aggressively there is some suggestion that there may be a subtle shift taking place in the underlying dynamics. Our daily scans are throwing up far more evidence of negative rather than positive divergences.

We continue to be intrigued by the formations that are evident on the daily chart for the Nasdaq Composite (^IXIC) and yesterday’s doji in the context of the two island patterns from last week corroborates our cautionary stance at this point on the long side.

Further evidence of a transitionary market environment is provided by the utilities sector fund, XLU. The last few sessions have seen a dramatic increase in volume and there is clear evidence that asset allocators are switching away from this interest sensitive sector.

The third chart that we have also been alluding to in recent commentaries is for the banking sector (^BKX) and the close yesterday brought the index just below the 50 day EMA and also on the verge of violating a trendline through the lows during the recent sideways action.

Clive Corcoran will presenting an all day workshop on Pattern Analysis and Dissonance at the Heathrow Holiday Inn just outside London. The event will take place on Sunday June 10th and full details about the workshop and how to register may be found here.


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

FAST  Fastenal Company Ltd  

Fastenal (FAST) reveals some notable negative divergences.

EBAY  eBay Inc.  

EBAY, which closed below the 200 day EMA, could be headed towards a test of the March lows just below $29.

CTSH  Cognizant Technology Solutions  

Cognizant Technology (CTSH) has begun a basing pattern but will encounter some resistance at the intersection of two moving averages that are just above yesterday’s close.

GIS  General Mills Inc.  

General Mills (GIS) gapped down on twice the average daily volume and closed right on its 50 day EMA. We would see opportunities to get short in the vicinity of $60.

GOOG  Google Inc.  

Google (GOOG) broke above its late November 2006 previous highest close on almost twice the average daily volume. It is usually prudent to be somewhat sceptical of breakout plays but there seems to be powerful momentum behind the recent moves.