Daily Form August 22, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY AUGUST 22, 2007       05:33 ET

It was another erratic session yesterday as traders seemed to be preoccupied by the outcome of meetings involving Treasury Secretary Paulson and Fed Chairman Ben Bernanke. The current market climate is ideal for nervous rumor based trading which has the effect of quick rallies that fade and short squeezes that bring the index back to a neutral position. The 200 day EMA has proven to be a strong attractor and provides a good area for a holding pattern while traders digest the developments in the credit markets and wait for something from the Federal Reserve.

I sense that many in the market want to see a rally and there are some stepping up to the plate to go long in many technology stocks but there is the ever present fear that troubles amongst some financial intermediaries and hedge funds could derail any over zealous recovery efforts.

The oil services index (^OSX) appears to be vulnerable to further weakness as there is an area of moving average resistance above yesterday’s close and the chart appears to be forming a step down pattern.

The exchange traded fund for the utilities sector, XLU, has evidence that the money flow and momentum dynamics are in transition from the recent distribution and that we could see a recovery rally.


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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PTEN  Patterson-UTI Energy Inc  

One of several stocks that could be ready to pull out of its descent is Patterson Energy (PTEN).

CSCO  Cisco Systems Inc.  

There appears to be a well orchestrated effort on the part of many institutional analysts and asset managers to talk up the technology sector in the hope that this sector can provide a new leadership initiative to move the market beyond the turmoils that still hang over the financial sector. Cisco (CSCO) is one of the stocks that is most mentioned as being a future leader, but, leaving aside all the chatter, it does appear that the chart pattern is pointing to a potential price surge in the medium term.

GPI  Group 1 Automotive  

Group 1 Automotive (GPI) recorded an NR7 pattern yesterday and the underlying dynamics look constructive for a move upwards towards the 50 day EMA in the near term.

CMVT  Comverse Technology Inc.  

Comverse Technology (CMVT) is in the early stages of a recovery with evidence that the money flow has turned positive.