Daily Form July 12, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JULY 12, 2007       06:59 ET

Tuesday’s strong downthrust session yielded to a relief rally as many indices appeared to find support at key levels. The chart for the S&P 500 (^SPC) below reveals how the intraday low enabled traders to probe the 50 day EMA during the session and also how buying support emerged which allowed the index to close with a modest gain. The whipsaws, whereby negative trend sessions are usually reversed in the very next session, are becoming highly characteristic of recent market behavior and are proving to be very frustrating for position traders that are expecting see follow through on the short side.

A similar pattern to the above can be seen for the Russell 2000 (^RUT) which also tagged the 50 day EMA and managed to move up 0.3% on the session.

Following Monday’s more detailed analysis, we shall revisit the chart for the exchange traded fund GLD which tracks the price of gold. From a technical perspective this is one of the most interesting charts that we reviewed today.

The trendline annotations illustrate the importance of the $66 level (equates to $660 for the precious metal). The break above the downward channel that took place decisively on Monday has been followed by two days of red candlesticks, although the price still closed yesterday above Monday’s close. However the next and critical hurdle is at $66 which represents the price at which the longer term trendline through the lows was violated in mid May. Until we see a definitive close above that level we would stay on the sidelines, but there are grounds now to question the rather complacently negative tone that has been firmly in place since early May


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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SGP  Schering-Plough Corp.  

Schering Plough (SGP) moved above a short term line of resistance on heavy volume in yesterday’s session.


The chart for FSH shows definite overhead resistance at $88 and there is evidence of negative divergences.

ECA  EnCana Corporation (USA)  

The chart pattern for Encana Corporation (ECA) indicates that a congestion pattern needs to be resolved as price has moved into the apex of a well defined triangular formation. The momentum and money flow charts are pointing to the fact that the stock has recently been under distribution.