Daily Form June 25, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY JUNE 25, 2007       05:36 ET

The performance of the banking index (^BKX) in Friday’s trading reveals the market’s growing apprehension about the deteriorating position with respect to long term interest rates. There is evidence that suggests that the recent breakout to higher yields in the Treasury market may be just the beginning of a fundamental change in the operating enviroment for financial services based companies.

The break below an uptrend line through lows that extend back to March and also the 200 day exponential moving average is pointing to a more difficult time ahead for several sectors of the market, specifically housing and consumer related stocks.

Last week we discussed the chart formation for the S&P 500 (^SPC) and commented on the possibility that in mid June a lower high plateau may have formed following the recovery from the early June sell-off. The index retreated to the 50 day EMA in Friday’s trading and with a 1.3% decline on the session it outpaced both the small cap Russell 2000 index and the Nasdaq Composite on the downside.

The bullish resolve of asset managers will be tested this week as we not only have reached a significant level on the charts but also we are approaching the end of the second quarter. For fund managers that are long the market a decisive close below 1490 on the S&P 500 during the course of this week could lead to portfolio adjustments that might prove to be rather unsettling.

The chart for the financial services sector fund XLF further illustrates the concerns that we have expressed above. Once again a lower high formed during the mid June period and a trend line has been clearly violated. Perhaps most clearly seen on this chart rather than the S&P 500 chart is the fact that the sector really has struggled to make any progress since the late February sell off and now appears to be capitulating.


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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BAC  Bank of America Corporation  

Persisting with our preoccupation with the financial services sector we want to focus on the daily and then the weekly chart for Bank Of America (BAC).

The daily chart below reveals how Friday’s break down from an extended wedge formation on twice the average volume also shows a decisive move below all three moving averages. The recent pattern has a fractal quality to it as it is echoed in the weekly chart as well.

BAC Bank of America Corporation (Weekly)    

On the weekly chart BAC has also dropped below a pennant like formation and closed below both its 20 and 50 week EMA’s.

It appears that the underlying bullish dynamics have given way to an intermediate term correction that could see a test of long term support/resistance around $44.

SIRI  Sirius Satellite Radio  

Sirius rallied by more than six percent on Friday from a clearly defined flag formation and the chart suggests that a basing pattern has been successfully formed with further gains likely.

CCL  Carnival Corporation  

Carnival Corporation (CCL) moved up despite Friday’s sell-off, on four times the average daily volume. A continuation back towards the recent high of $51 seems likely, but we would take profits slightly below this level and not extend our stay.