Daily Form June 20, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JUNE 20, 2007       03:04 ET

After reaching above 5.3% in intraday trading on June 13th, the yield on the ten year note has fallen back by more than twenty basis points. This has contributed to the broad rebound in stocks and raises the possibility that the concerns that were being expressed at the beginning of the month about a possible secular change taking place in bond yields was overblown.

We may need to revisit the 5% level (the 20 day EMA lies at 5.03%) before there is a further indication from actual Treasury sales as to the longer term prospects; much of the recent activity could have been derivatives based trading predicated on the over reaction that was seen earlier in the month.

The S&P 500 (^SPC) produced another narrow range formation that fitted entirely within the confines of last Friday’s session. There could be a positive bias entering the market over the remainder of June as asset managers wish to present their end of quarter portfolios in the best possible light. Balanced against this is the possibility that Treasury traders will find a new excuse to push up yields and that asset allocation models will again be alerting to a need to prune equity holdings.

In reviewing the sectors, XLP, which represents the consumer staples stocks is showing relative weakness. The momentum and money flow characteristics are showing that the sector appears to be out of favor.


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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FRE  Freddie Mac  

Freddie Mac (FRE) registered a prominent hammer candlestick in which the intraday low tagged the 200 day EMA and also the June 8th low. Support is to be expected, but if a failure was to occur there is little obvious chart support until $60 is reached.

IACI  IAC InterActiveCorp  

We cited InterActive Corp (IACI) recently and indicated that the pattern looked constructive on the long side. Yesterday’s move up on above average volume has brought the stock to a potential hurdle at the 50 day EMA but the underlying dynamics still look positive.

MRK  Merck and Co. Inc.  

Sometimes our recommendations can produce fairly immediate results (alas not always in the expected direction!) and at other times there is a more prolonged validation of the interpretation. At the end of May we mentioned that Merck (MRK) appeared vulnerable to corrective behavior in the intermediate term. Continued attrition has brought the stock down to a pivotal level but looking at the larger frame pattern there is an apparent descending wedge formation that could call into question the upward gap move that took place in April.