Daily Form June 13, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JUNE 13, 2007       06:22 ET

Once again the markets were rattled by an upsurge in bond yields. The yield on the longest maturity Treasury - the thirty year bond - was, as it has been for some time, in the vanguard of the move higher. Yields closed at 5.36% which places them higher than they were just over a year ago.

The Russell 2000 (^RUT) dropped by 1.4% and closed below its 50 day EMA and as the chart below reveals we are now below the uptrend line through the lows.

One of our concerns on the bearish side is that pessimism has become widespread rather quickly and in some ways the charts look to be too easy to exploit on the short side.

The banking index (^BKX) continues to suffer as the financial environment becomes tougher for the mainstream banks. The index closed below the 200 day EMA but the intraday low yesterday notably did not reach down as far as the lows recorded on May 7th and 8th.


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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ATI  Allegheny Technologies Incorporated  

Allegheny Technologies (ATI) breached a short term trend line in yesterday’s above average volume decline.

FAST  Fastenal Company Ltd  

We commented in our commentary a week ago that Fastenal (FAST) was revealing some notable negative divergences and it delivered a nice profit in the following two sessions. The stock has pulled back from that drop but could run into further selling as it approaches $42.

CDNS  Cadence Design Systems  

Cadence Design (CDNS) has an intriguing pattern which has most of the characteristics of a bull flag following the recent price breakout. The long red candlestick which marks the top of the flag pole makes the pattern unorthodox but the volume pattern is supportive of the flag interpretation.

SO  The Southern Company  

We have included the chart for Southern Company (SO), which is both a constituent of the Dow Jones Utilities and the S&P 500 because it illustrates a rather striking breakdown pattern following some negative chart formations. The selling pattern has recently looked to be rather climactic but the stock reached new multi period lows again yesterday. Now down by more than ten percent since late April the magnitude and rapidity of the decline is quite remarkable.