Daily Form June 7, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JUNE 7, 2007       07:15 ET

Yesterday equity traders decided to see a glass that was half empty rather than half full. It is also becoming harder to avoid acknowledging the dissonance that we have been noting regarding the hopes for a more accomodating policy from the Federal Reserve and at the same time the back up in long rates.

Selling was broadly based although the indices finished off their lows and the Nasdaq Composite managed to contain its losses to less than one percent.

The S&P 500 (^SPC) closed exactly at the 20 day EMA as did the DJIA.

One of the uglier charts is for the banking sector (^BKX) which we also featured in yesterday’s commmentary where we discussed the probable break below an important intermediate trend line. This chart serves notice that the financial environment is becoming more challenging for the equity market.

Recent recommendations, which have been primarily on the short side (EXC, PTV, FAST, MRK and EBAY) delivered well for us in yesterday’s trading but we would not become too confident on the short side unless important support lines are broken. In particular the 2525 level on the Nasdaq Composite will be a key level to monitor.

Also featured in yesterday’s commentary was the ETF for the utilities sector, XLU, where the topping pattern and mini flag formation could have acted as an early warning indicator of the last two days of market weakness.

The CBOE Volatility Index (^VIX) had been largely confined within a well defined channel between 12 and 14 since early April but yesterday’s bout of selling has broken us above the range.


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

EXC  Exelon Corporation  

Excelon (EXC) mentioned here twice during the last three weeks completed a profitable short trade for us yesterday.

MMC  Marsh and McLennan Co"s  

Marsh McLennan (MMC) has a bullish pattern that looks poised to see higher prices. The stock could be headed back towards levels above $40 from which it dropped precipitously in October 2004.

IACI  IAC InterActiveCorp  

InterActive Corp (IACI) declined in line with the market yesterday but on relatively modest volume and the pattern looks constructive on the long side.

PH  Parker-Hannifin Corp.  

One pattern that we pay close attention to is revealed on the chart for Parker-Hannifin (PH). Tuesday’s small doji star formation was also an inside day and this was followed yesterday by a gap down and range expansion on heavy volume. We would expect to see follow through to the downside in coming sessions.