Daily Form August 3, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY AUGUST 3, 2007       06:58 ET

The indices remain highly volatile and this is not the kind of market that lends itself well to position trading but rather favors the use of nimble intraday trading strategies. Despite much thrashing around the chart for the Russell 2000 (^RUT) still reveals a lot of ground that needs to be made up before it can take on the challenge of crossing back above the 200 day EMA.

Achieving this is just one of the real tests for the bullish camp that continues to present the market tumult as a great buying opportunity.

While this index remains below the 200 day EMA I would suggest that the benefit of the doubt be given to an outlook that sees an ongoing series of setbacks that will follow the inevitable short squeeze based rallies.

The best expression of the current market environment is to be found in the chart for the CBOE Volatility Index (^VIX) which despite two positive days for the broad indices is still showing implied volatility forecasts that are greater than at the peak of the previous "critical" episode for the credit markets in early March.

The gold bulls seem to be constantly frustrated in their attempts to get a sustainable rally going. I have commented previously on the clear break of the downward channel that occurred in early July and the brief surge above the important $660 level (or $66 on the chart for the exchange traded fund, GLD), but the momentum seems to be evaporating and the chart is now pointing to a bearish flag formation that appears to be developing.


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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AMLN  Amylin Pharmaceuticals  

Amilyn (AMLN) which I cited as a long candidate on July 26th still seems to be in a constructive formation despite all of the turmoil of the most recent sessions. But as already noted the reliability of favorable chart formations has to be constantly qualified in the current market environment.

RIG  Transocean Inc.  

Back in mid July I pointed to the fact that Transocean (RIG) appeared to be losing momentum and undergoing some distribution near recent highs. The stock made a strong upward gap move on July 23rd stopping me out of my short position. But, in the often frustrating manner in which interpreting this type of pattern can often be essentially right but from a precise timing point of view inopportune, the stock has slumped ever since the upward gap move and would have delivered a nice profit from the original point of entry!

CHKP  Check Point Software Technologies Ltd.  

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