Daily Form December 5, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY DECEMBER 5, 2007       06:36 ET

It was the large Nasdaq stocks that provided leadership during October’s broad market advance and then as the money market woes spooked traders during November, and especially in the lead up to Thanksgiving, many of these large stocks went into a tailspin as long only fund managers began to jettison the more stellar performers like Apple, Google and even Microsoft.

The equities rally last week, which was mainly focused on the financials, did not really provide much of a fillip to the tech stocks and the 100 hundred largest components of the Nasdaq have now retreated to a pivot level.

The chart for the Nasdaq 100 (^NDX) shows that the 2050-2070 area represents a key chart level as it marked the swing high in mid-July, the breakout level from late September and also coincides with the 50 day EMA. If we are to see a year end rally it would be surprising for it to happen without us seeing some renewed vigor from many of the constituents of this index.

One of the more interesting indices at present and one that I shall focus on in my guest analyst slot today on CNBC’s European Closing Bell is the UK’s FTSE 100. The index retreated in yesterday’s session by a little more than one percent and closed below all three moving averages. However as this commentary is being written the index has advanced by more than 1.4% and has now regained a foothold above 6400. The index is out-performing both the CAC40 and the German DAX in today’s session as there is a growing sense that the Bank Of England could be preparing for an easing when it meets tomorrow.

The chart level that I have drawn represents the 6457 level which, as is apparent passes through several recent intraday highs where resistance has been encountered. This level sits exactly at the 62% retracement of the swing high in October and the swing low in late November. Penetrating above this level will be a real test for the bulls even if the B oF E obliges with a cut in the repo rate.

The Nikkei 225 (^N225) has made a valiant recovery effort since its encounter with the abyss at the end of November. The 38% retracement from the recent swing high and low sits at 15740 which also marked the intraday high for trading in Monday’s session.

In Monday’s commentary reference was made to the technically weak pattern in the sector fund XOP which is populated with companies in oil and gas exploration. The closing level yesterday is at a pivot point on the chart and also within the context of what appears to be a bearish flag formation.

However the very large volume recorded in yesterday’s session without a significant move out of the flag would cause me to be cautious at this juncture as this is not in accordance with the usual technical characteristics of the flag pattern.


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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The Dow Jones Utilities index (^DJU) established another historic high yesterday and here are my comments from two weeks ago regarding the sector.

"The utilities sector fund, XLU, has a positive price pattern and the underlying money flow looks as though the sector is providing a haven to some footloose capital that is being switched out of many other market sectors."

AMAT  Applied Materials Inc.  

Applied Materials (AMAT) has a rather constructive MACD chart where there is a positive slope which diverges from the recent price action.

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