Daily Form June 20, 1008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JUNE 20, 2008       05:55 ET

Yesterday was one of the most interesting in what has been an ongoing series of coordinated inter-market strategies between energy traders on the one hand and index futures traders on the other. The chart for the exchange traded SPY shows more vividly than the cash index the nature of the spinning top pattern which is often seen at inflection points.

Anticipating which way we will break in the short term at least is not my primary focus as a trader but the one thing which does stand out is the extremely low reading on the MFI chart which could suggest that the bears have already taken their best shot in the current maneuvers.

The Bovespa index in Brazil (^BVSP) has broken below the 50 day EMA and now faces a test at a fairly critical level of chart support.

Adding to the intrigue in the coordinated macro inter-market strategies was the announcement by the Chinese government that the prices on imported energy products were going to be hiked substantially with immediate effect. This would almost certainly have caught energy traders unawares and there could be further re-allocations as the impact on the sector is more fully digested.

The Oil Index (^XOI) responded to the development with a close below the 50 day EMA.

Two weeks ago I discussed the breakout in the cross rate between the Australian dollar and the Japanese yen. The area I have highlighted in yellow on the chart shows the reversal move that provided the first alert to the break above the 100 level as the high yielding currency strengthened against the yen.

In all cross rates there is a combination of strengthening of one currency against a basket of currencies and weakness of the other as much as a particular focus on the specific exchange rate for the pair. The general point that I have made previously is that this rate, often seen as a key carry trade pairing, can often be seen to peak at moments of inflection for global equities. I would suggest monitoring this rate in coming sessions as a surge in the rate with a rejection pattern - such as a shooting star formation - could be a tip off to increased equity market volatility.


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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ISIL  Intersil Corporation  

The chart for Intersil (ISIL) reveals momentum divergences on the move up to $29 in mid May and now the stock faces the hurdle of trying to back break above converged moving averages from below.

LVLT  Level 3 Communications  

I have mentioned the pattern Level 3 (LVLT) previously as there has been a retreat to the early June breakout and other evidence of chart support.

MRO  Marathon Oil Corporation  

Marathon Oil (MRO) has registered two consecutive doji star formations astride the 50 day EMA and there appears to be a lower high in place with negative momentum divergences.