Daily Form September 25, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY SEPTEMBER 25, 2007       05:29 ET

There were some notable divergences in the performance of the major equity indices in yesterday’s trading. The DJIA slipped back 0.4% and the S&P 500 retreated by 0.5% whereas the Nasdaq 100 index (^NDX) managed to gain 0.4% and close at a multi-year high just above the 2050 level.

The spinning top formation at a significant high, which also coincides with the upper volatility band, is an intriguing pattern that is sometimes indicative of a market inflection point. I still would expect the S&P 500 to rally back to the mid July highs around 1555 and to that extent the large Nasdaq stocks, which are currently favored by asset managers, should have further uplift potential. Just how much longevity this rally still has should become clearer as the DJIA and S&P 500 take on their mid July highs and if the charts reveal more spinning tops and shooting star patterns then we might be in for a lively start to trading conditions in October.

Some of the weaker stocks yesterday were found in the financial sector with the banking index (^BKX) dropping 1.6% and the broker/dealer index (^XBD) suffering a more than two percent decline. The exchange traded fund for the financial services sector, XLF has reached an intersection of the 20 and 50 day EMA’s and the pullback pattern since last Tuesday’s surge suggests that, if the bulls are still in control of the agenda, we should see a resumption in upward momentum in the near term.

The pattern on the sector fund for the utilities, XLU, looks constructive on the long side in the intermediate term and I would be targeting the $42 level which was achieved in mid May.

The bullish reaction to the fed funds easing last week should play well for the small cap Russell 2000 index which dropped back towards the 800 level in yesterday’s trading. I would expect a bounce in the cash index at this level and the easiest way to play this would be via the exchange traded proxy, IWM.


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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TER  Teradyne Inc.  

There is a notable positive divergence on the chart for Teradyne (TER) between price action over the last few sessions and the upward slant to the MFI. This is a pattern which can produce explosive breakouts.

GY  GenCorp Inc.  

GenCorp (GY) has a mini bull flag formation but has to confront potential resistance at the 50 day EMA. Yesterday’s low volume session left a doji star formation with a minor loss but the long green candlestick from last Tuesday on heavy volume suggests that the pullback may be close to having run its course.

GR  Goodrich Corporation  

Goodrich (GR) is showing signs of a possible short term topping pattern with negative money flow divergences.