Daily Form July 31, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JULY 31, 2007       06:23 ET

The markets found some degree of stability yesterday after an erratic start to the session. The S&P 500 (^SPC) came very close to tagging its 200 day EMA and also found some nominal support from the pre Feb 27th resistance high that may have provided a "psychological" support level for traders yesterday after the battering that the indices took last week.

The Dow Jones Utilities (^DJU) have been trading in a very technically precise manner recently. The index rallied back to the 520 level as would be expected from chart and has now bounced off the previous March low levels.

The S&P Midcap index (^MID) also performed a technically precise testing of its 200 day EMA in yesterday’s session.

In yesterday’s commentary I looked at the FTSE index and discussed the relative underperformance in recent weeks as contrasted with the S&P 500. Also worth attention is the action in the Nikkei 225 which has clearly fallen out of the ascending channel off the March lows and came to rest in Tuesday’s trading almost exactly at the 200 day EMA level. Notably this index has so far failed to regain its position above the February peaks.

I am also watching the Japanese yen closely as important cross rates against sterling and the Australian and New Zealand dollars can provide some clues as to the actions of hedge funds with respect to the carry trade. The 118 level on the dollar/yen is an important threshold level that may be tested in coming sessions.


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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GS  The Goldman Sachs Group Inc.  

As expected many of the financial stocks found some stability in yesterday’s trading with a couple of notable bounces, including Wells Fargo (WFC) which moved up more than 3%. Goldman Sachs (GS) also appears to have reached some stability near to its March lows.

PAYX  Paychex Inc.  

Paychex (PAYX) has a constructive looking flag formation

MRK  Merck and Co. Inc.  

Merck (MRK) reveals a long lower shadow or tail at a key intersection of moving averages and may be ready to move higher as long as the overall market remains relatively stable.

BRL  Barr Pharmaceuticals Inc.  

A somewhat similar pattern to Merck is to be found on the chart for Barr Pharmaceuticals (BRL).

CHKP  Check Point Software Technologies Ltd.  

Checkpoint (CKP) looks favorable on the long side and an entry near to the $24 level could present a chance to benefit from renewed buying interest following last week’s strong upwards gap move on heavy volume.