Daily Form August 9, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY AUGUST 9, 2007       07:52 ET

The rally continued yesterday as trading desks continue to probe the conviction behind the traders that delighted in the credit market woes that seemed to be so prevalent just a week ago and which allowed a lot of easy money to be made on the short side.

The S&P 500 (^SPC) tagged the 50 day EMA yesterday and I suspect that the easy money on the recovery rally has also been made.

Echoing the pattern that was observed in the S&P 500 the banking index (^BKX) also tagged its 50 day EMA in yesterday’s trading. The sector will face some clear chart resistance as it tries to break back above the 112 level.

The comments on Tuesday from the FOMC that the economy and consumer remain surprisingly resilient have provided the impetus for Treasury traders to explore higher yields again. The plateau around 4.75% on the ten year note was pointing to the fact that the market was overbought and I would expect to see another retest of the region around five percent.

The longest maturity, the 30 year bond, is seeing yields move at a proportionately higher rate of advance and yesterday broke back above the five percent level.

For sector traders the consumer discretionary fund, XLF, looks as though it will encounter some firm resistance at the area marked on the chart which coincides with the confluence of the 20 and 200 day EMA’s.

One notable feature of recent market activity is a significant pick up in the volume of many of the ETF’s suggesting that a lot of recent trading has been based on macro asset allocation considerations.


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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APC  Anadarko Petroleum Corporation  

Anadarko Petroleum (APC) is developing a pronounced triangular formation and yesterday’s whipsaw session suggests that traders are struggling to determine the near term direction.

I would step aside at the moment but expect the intermediate term picture to become clearer as the struggle resolves itself in coming sessions.

AMLN  Amylin Pharmaceuticals  

Amilyn (AMLN) was featured here on August 3rd and the flag formation gave way to the anticipated breakout enabling the stock to be one of the standout performers over the last few sessions.

The long upper tail suggests that the stock may now be faded as some of the late arriving breakout players may begin to feel stranded.

ULBI  Ultralife Batteries Inc.  

Another follow up to a recent focus stock that was discussed here, shows that Ultralife Batteries (ULBI) has reversed the damage that was done at the end of last week.

The stock now needs to show that it has the requisite momentum to take out the intraday high from last week.