Daily Form June 14, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JUNE 14, 2007       05:39 ET

Yesterday’s sharp reversal rally was lead by the large cap indices with both the S&P 500 and the DJIA pushing ahead by 1.5% each. The Nasdaq Composite (^IXIC) along with the small cap Russell 2000 (^RUT) slightly under-performed with 1.3% gains.

The chart below shows that yesterday’s closing price of 2582 on the Nasdaq Composite puts the index just above the violation level from last Thursday’s sell off and will help to keep the pundits guessing as to the underlying significance of last week’s break. We need to monitor the Treasury market for major clues and also evidence of changing liquidity conditions, which might manifest themselves in weakness in marginal and emerging markets, as well as the level of M&A acitivity.

One of the best performaning indices yesterday was the Dow Jones Utilities (^DJU) which produced a two percent gain. The index will probably head towards the intersection of the 20 and 50 day EMA’s that we highlighted on the daily chart.

Amongst the constituents Southern (SO) and Excelon (EXC) both bounced from extremely oversold conditions but it could be that traders will be looking for the opportunistic entry levels on the charts to resume selling as we sense that the correction in the utilities was more than just a three week affair.

One of the sector funds that we will be watching in coming sessions is the consumer discretionary sector as represented by XLY. The chart suggests that a flag like formation could develop and money flow would need to change quite radically to convince us that the sector is about to begin a new bullish leg upwards.


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

BK  The Bank of New York Co.  

Bank of New York (BK) shows a remarkable turnaround that occurred right on cue. The stock sold off heavily last Thursday but the 200 day EMA provided the necessary support for a rescue attempt (including anxious short covering). A failure at the $38 level would have put in jeopardy the large upward gap on the charts from last December 4th when the stock surged by 12% on the announcement of the take over of Mellon Financial. We sense that most of urgency to the recovery effort has already been expended.

GS  The Goldman Sachs Group Inc.  

Another striking reversal of fortune can be seen in the chart for Goldman Sachs (GS) Last week we drew attention to the drop below the 50 day EMA but within just four sessions the investment bank has reversed that entire decline and registered a new all time high.

The relative strength of the investment banks and the (^XBD) index during last week’s sell off in contrast to weakness in the mainstream banking sector set up an interesting dissonance which may partly help in understanding the vigor of yesterday’s market recovery. We suspect that the dissonant pattern will not see a one sided resolution in favor of continuing good times for the broker/dealers if the money center banks and other financial services companies are buffeted again when long term yields resume their ascent.

WEN  Wendy"s International  

Wendy’s International (WEN) has a bullish ascending wege pattern that could be presaging a breakout to new highs.