Daily Form August 23, 2007

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY AUGUST 23, 2007       07:37 ET

Many charts are revealing how much recent price patterns have been guided by two key technical indicators - the 50 day exponential moving average and the 200 day EMA. For example the daily chart for the Nasdaq 100 (^NDX) clearly illustrates how the 200 day EMA uncannily provided support during last week’s rout and how the fifty day EMA has been targeted for the recovery rally.

In yesterday’s trading the index came to rest at almost exactly the level for the 50 day EMA. There is a further hurdle to be crossed which is chart resistance/support at 1950 which sits less than one percent above yesterday’s close. My suspicion is that we may see a spike above that level in today’s trading but there will be difficulty in sustaining closes above that level without some price consolidation and digestion of the recent gains.

Echoing the observation that recent price action has validated the reliance on the two key EMA indicators, the Russell 2000 (^RUT) came to rest in yesterday’s recovery continuation almost exactly at the level of the 200 day EMA. The index faces not only the resistance provided by this key moving average but there is a chart based hurdle at the 800 level.

It would be surprising to see this index surge through this overhead resistance but, having said that, I am learning, in the current exceptional market conditions, to become quite relaxed about surprises.

Treasury yields especially of shorter duration securities have plunged over the last month as the flight to safety issues have become intermingled with speculation that short term rates are headed down. Also quite notable has been a steepening of the yield curve at the longer end and highlighting this, the 30 year bond closed yesterday at a yield of more than thirty basis points above the ten year note’s yield.

Despite erratic moves at the shorter end of the duration spectrum, the yield on this longest dated Treasury, currently close to five percent and the 200 day EMA, has been relatively stable during August.


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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FFIV  F5 Networks Inc  

F5 Networks (FFIV) continues to exhibit the characteristics of a bear flag formation and the pattern looks to be ripening as the volume on yesterday’s move up towards the 200 day EMA was on very subdued volume.

GOOG  Google Inc.  

Reinforcing the theme developed earlier regarding the two key moving averages, Google (GOOG) once again illustrates how the 200 day EMA provided intraday support during last week’s sell off and yesterday’s close yet again was exactly at the 50 day EMA.

The stock also faces chart resistance at $520.

STX  Seagate Technology  

One chart to keep an eye on for a possible bullish breakout in the medium term is for Seagate Technology (STX). A move above $25 on substantial volume could put the previous 2007 highs close to $28 back in play.