The S&P 500 cash index recorded an extremely narrow intraday range yesterday with only 4.5 points separating the low from the high. The index closed just twenty points from the multi year high that was achieved on May 5.
The oil sector (^XOI) closed below its 50-day EMA yesterday. Several stocks in the sector look vulnerable, including CVX that we recommended on the short side last week, but there are different strands to the news flow that could provide volatile trading in coming sessions.
The chart for the banking sector index (^BKX) reveals a nested or fractal triangular formation that is pointing to a lack of conviction about intermedidate term direction. The release of employment data tomorrow may be the catalyst for a strong range expansion session which can be played from either side with the right position management techniques.
IGW, one of the sector funds that represents the semiconductor stocks closed above the 200-day EMA for the first time since mid May. The upward moves over the last three sessions probably constitutes the bulk of the gains that would normally be expected from the breakout from the preceding flag formation and there is chart resistance at $62. Further gains in the Nasdaq, which has been showing relative strength in recent sessions, may require further participation from the sector.
TRADE OPPORTUNITIES/SETUPS FOR THURSDAY AUGUST 31, 2006
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.
Genentech (DNA) broke above its 200-day EMA on above average volume yesterday and appears to be ready to mount another shot at the July highs in the vicinity of $86.
Cadence Design Systems (CDNS) has a bullish flag formation with the appropriate volume characteristics but it has to take on the 200 day EMA hurdle which marks the top of the flag pole.
Citrix Systems (CTXS) has a well defined bull flag formation with supporting money flow characteristics.
Analog Devices (ADI) has recovered from a steep sell off earlier this month but may now face resistance at the 50-day EMA which is where it closed yesterday.
TXU is showing waning momentum and money flow as it seems unable to break above $66.
Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.
Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarante of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.
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