Daily Form June 29, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JUNE 29, 2007       05:53 ET

Our intuition, expressed in yesterday’s commentary, that the volatile reversal action in Wednesday’s trading may have anticipated how traders would greet the FOMC announcement appears to have been validated as the market spiked up right after the decision (which was agreeably not surprising) but then came to rest essentially at the same level that it had opened and in line with Wednesday’s close.

The net result was that most charts reveal shooting star/doji formations and the pattern on the S&P 500 (^SPC) illustrates this well. We continue to be somewhat concerned by the possibility that we registered a lower high in mid June and will remain vigilant for a closing break below 1485 or thereabouts.

The commentary will not be published next week and we wish all of our American readers a happy 4th of July holiday.

The chart for the Nasdaq 100 (^NDX) shows a similar kind of shooting star /doji formation to the one we noted above but this time there is the additional implication that the intraday high reached back yesterday towards the mid June high and yet fell short before heading back down towards the opening level.

The appeal of the large technology stocks that have been the recent beneificiary of asset allocators switching away from the banks, utilities and other interest sensitive sectors, has been one of the reasons to remain ebullient about the overall market’s chances of avoiding a slump. We need to monitor whether there is confirming evidence that the big Nasdaq stocks might be topping out.

The yields on Treasury instruments moved up on the FOMC announcement and as the chart reveals the recent retreat in yields turned after reaching the 20 day EMA. Trading in coming sessions may well lack the normal liquidity as Treasury market participants celebrate the mid week July 4th in what could be a very quiet week, but it will still be useful to track the progress of the benchmark yields and the performance of the large stocks within the financial sector.


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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AVID  Avid Technology Inc  

Ten days ago we pointed to Avid Technologies (AVID) and the ascending wedge pattern with some positive divergences. Despite a retreat below the EMA’s the trend line remained positive and the last two days have produced the break out behavior that was expected. Intraday the surge in the stock yesterday met overhead resistance exactly at the 200 day EMA.

CSCO  Cisco Systems Inc.  

Cisco Systems (CSCO) could be in the process of registering the third successive lower high following the point A on the chart that occurred early in January.

GIS  General Mills Inc.  

Another follow up to a recent recommendation seems timely. In mid June we commented that General Mills (GIS) offered a good opportunity on the short side at the $60 level. The stock has eroded since and now there is evidence of a mini bear flag formation which could presage another leg down for the stock.