Daily Form June 4, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JUNE 4, 2009       05:23 ET

The Dow Jones Industrials Average Cash Index has still not managed to confront the 200 day EMA which currently has a value of 8860.

The exchange traded proxy, DIA, has tagged its 200 day EMA twice in the last three sessions, but is also revealing some tiny range candlesticks (including a hanging man candlestick yesterday) on declining volume with the possibility of a lower high being registered than that seen in January.

The index is undergoing transition as GM and Citigroup (C) make way for Travelers (TRV) and Cisco (CSCO) but it is still worth paying close attention to the Dow as it is still the most widely quoted index in the global capital markets.

I continue to remain cautious about equities and see the reward/risk ratio on the long side as becoming more problematic as an increasing amount of market pundits seem to be focused on the long term sustainability of current public deficit levels.

The following commentary from Bill Gross at PIMCO is quite revealing in this regard.

KBE, the exchange traded fund which corresponds to the performance of the KBW Banking index, is moving sideways after a violation of the uptrending line through the lows since March.

While, and until, this index is unable to rally further out of the congestion zone this may keep the overall equity market in a waiting pattern.

As anticipated in Tuesday’s commentary commodity indices ran into resistance at exactly their 200 day EMA levels. DBC, cited in my last column, dropped back 3.3% yesterday.

The fund which I will be monitoring for entry opportunities on the long side is DBA which tracks the price of key agricultural commodities.


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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AYE  Allegheny Energy Inc.  

Allegheney (AYE) has pulled back following a recent drop on substantial volume and could be vulnerable to further weakness near the $27 level.

FAF  First American Corp.  

First American Financial (FAF) is also developing a bearish pullback pattern.

NEM  Newmont Mining Corporation  

Newmont Mining (NEM) would become attractive on the long side around $45.

RRI  Reliant Energy Inc.  

Reliant Energy (RRI) dropped by 9% yesterday but on much reduced volume. Potentially this could retreat to the 50 day EMA at $4.50 at which price it would be appealing on the long side.

TRID  Trident Microsystems Inc.  

Trident Microsystems (TRID) has a pennant formation and could break away to the upside as suggested by the positive volume characteristics.