Daily Form August 8, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY AUGUST 8, 2007       06:49 ET

The chart patterns for the indices from yesterday’s volatile session are characterized by long upper and lower tails with a small body indicating that the open and close were fairly close together but the market swung through extended intraday ranges. This candlestick pattern is often referred to as a spinning top and apart from indicating whipsaw behavior it also illustrates an indecisive stance by most traders.

The FOMC announcement was the catalyst for much of the volatility and the roller coaster ride that followed produced no real insight into whether the market’s expectations (which may not be that well defined at the moment) were met by the Fed’s statement. Sentiment remains fragile and the spectre of further fallout from problems in the credit markets will continue to provide a cautionary element to rally attempts.

The Nasdaq Composite (^IXIC) will probably attempt a rally back to the convergence of the 20 and 50 day EMA’s but the onus will be on the bulls to surmount this hurdle given the underlying uncertainty and battering that long only fund manangers have had to endure recently.

The retail index (^RLX) produced one of the more extreme variations on the spinning top candlestick formation in yesterday’s trading. The index’s recent performance as well as the subdued rally seen in the consumer discretionary sector fund, XLY, suggests that the market is becoming more preoccupied witht the likelihood of an economic slowdown which can only be aggravated by problems in the mortgage 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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PAYX  Paychex Inc.  

As before I am reticent to make many calls in the current market environment as the prevalence of whipsaw behavior is not conducive to position trading. So again I shall review a recent trade that worked out well. A week ago I cited the chart for Paychex (PAYX) for its constructive looking flag formation and the performance over the last two sessions has delivered a healthy profit.

CHKP  Check Point Software Technologies Ltd.  

Checkpoint (CHKP) still looks favorable on the long side.

RFMD  RF Micro Devices Inc.  

RF Micro Devices (RFMD) has an unorthodox flag formation which is complicated by the fact that the stock is at the confluence of all three moving averages. If the stock does break free from the consolidation pattern it could make a quick move up towards $7.50.