Daily Form September 24, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY SEPTEMBER 24, 2007       06:01 ET

Traders appear to be waiting for the right excuse to re-test the mid July highs on the S&P 500. The mini consolidation that has arisen following the upthrust session last Tuesday appears to be relatively restrained and the next obvious target for the bulls that are "banking" on a Fed induced recovery is the 1555 area which also marks the upward bound to the 50 period volatility bands.

Just how much further this rally can extend is open to a lot of conjecture but undoubtedly equities as rather simple mark to market assets that avoid the opacity and complexity of more exotic asset classes, are proving to be a strong attraction as asset allocators and hedge fund managers seek out gains as we approach the end of the third quarter.

Overseas markets are mixed as this is being written with the Hang Seng Index recording an almost 3% gain but some of the European markets are off to a mildly negative start. One index that is particularly interesting at the moment is the FTSE in the UK. This index still has to re-challenge to the 2000 highs and which has its own issues that linger from several local issues including, but not limited to, the recent U turn by the Bank of England and a real estate bubble that could be on the verge of deflating.

The banking index (^BKX) ran into resistance at the 112 level as expected and the sector is now poised in the narrow range between the 50 day EMA and the 200 day EMA. A lot of the individual banking stocks are facing the challenge of breaking above their mid July highs including Bank of America (BAC) and Wells Fargo (WFC) and the charts for these stocks are not providing unambiguous signals as far as accumulation and distribution.

Treasury instruments have reacted with much less enthusiasm to the FOMC’s easing than the way that traders in global equities have. The long end of the yield spectrum is showing the most of the move up in yields and the 30 year bond looks set to test the rather critical 5% level in coming sessions. The action in the forex market and the gold market are showing that while equity investors seem to subscribe to an economic outlook that resembles the Goldilocks fable there are other sectors of the financial markets that may be less sanguine about the soft landing scenario.


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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CTAS  Cintas Corporation.  

Cintas (CTAS) moved above its 50 day EMA and an area of chart congestion on heavy volume in Friday’s trading and I would be looking for a move up to the $38.50 level in coming sessions.

HMIN  Home Inns and Hotels Management Inc.  

Home Inns and Hotel Management (HMIN) slipped below two key moving averages on Friday and I suspect that the stock could continue down towards the $35 region that was reached in mid August

XOM  Exxon Mobil Corporation  

Exxon Mobil (XOM) is encountering resistance at the late July highs and I shall be watching for further evidence that the momentum is fading and that a short term correction may unfold.

TSO  Tesoro Corporation  

Another pattern that looks promising on the long side is for Tesoro Corporation in the oil services sector. The close on Friday placed it above all three moving averages but the lack of conviction in volume action will keep me on the sidelines until further evidence emerges that the stock can break decisively above the $82 level