Daily Form July 20, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JULY 20, 2007       06:30 ET

The Nasdaq 100 index (^NDX) has been the standout performer since the beginning of March and the slope of ascent since the beginning of July might start to cause some discomfort to those fund managers that suffer from vertigo.

Yesterday’s tiny doji star also accompanied with an island gap formation could be a sign that the enthusiasm for technology and the excitement about the recent earnings reports may be getting close to the point where it has been fully priced in to the index for the time being.

The financial sector continues to be buffeted with cross currents as traders try to anticipate the future course of long and short interest rates in the wake of Fed Chairman Bernanke’s testimony, earnings reports and economic data. So far the tests of the 200 day EMA have worked out more in favor of those who see lower prices as an opportunity to find bargains in the sector but traders still seem to be uncertain about the reliability of the previous tests and it may be that comfort that the 200 day EMA level can hold will require another visit below the green line on the chart.

The broker/dealer sector index (^XBD) has carved out a well defined channel over the last month. While the trendline through recent lows is rising and has not been violated it is also worth observing that the index has struggled to regain ground above the 20 and 50 day EMA’s and the 258 level which is an area of chart support/resistance.


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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SO  The Southern Company  

The utilities have been rallying over the last several sessions and the chart for Southern shows how a constructive chart formation now faces possible resistance near to the 50 and 200 day EMA’s. On the chart for the Dow Jones Utilities, the index also faces a potential hurdle at 520 which was close to where the ^DJU closed last night.

HAS  Hasbro Inc.  

Hasbro (HAS) is coming towards the critical threshold in an upward wedge formation and could be preparing for a break above its recent ceiling in coming sessions.

BBI  Blockbuster Inc.  

Blockbuster (BBI) is in a constricted range within an extended basing pattern where most of the sellers may have already exited the stock.

FDRY  Foundry Networks Inc.  

In Wednesday’s commentary it was noted that Foundry Networks (FDRY) appeared to be ready to break above an ascending wedge formation and yesterday’s action saw the gap up breakout. However as noted previously in connection with the chart for the Nasdaq 100 a tiny doji star was formed which may cause some trading desks to want to fade the enthusiasm of the breakout players.

COF  Capital One Financial Corp.  

In reviewing the chart for Capital One Financial (COF) earlier in the week it was anticipated that the stock would face difficulties at the intersection of key moving averages. The stock gapped up to that level on the open and then sold off for the remainder of the session. The pattern is quite a good reflection of the challenges faced by many stocks in the financial services area.