Daily Form August 6, 2008

Profit Patterns and Risk Management For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY AUGUST 6, 2008       06:50 ET

Equity traders gave a strong endorsement to the tone of the FOMC’s announcement and are continuing to celebrate the plunge in commodity prices. Looking at levels on the S&P 500 (^SPX) the index came to rest just below the 38% retracement of the move from the mid May high to the mid July low. Depending on exactly how it is measured (i.e. whether closing or intraday levels are taken) this threshold lies around 1292.

The next target will be the 50% retracement level which is in the vicinity of the 1320 level.

When reviewing the much larger retracement from the October 2007 high to the previous mid March 2008 low, this benchmark index, unlike the Nasdaq 100 and the Russell 2000, failed to make it back towards the 62% retracement of that previous move. Once again, moving beyond the 1320 and back towards 1350 which is now the 62% retracement level will be a key test for this current round of optimism.

In trading in Europe on Wednesday morning the dollar has surged through the 108.40 level in a clear breakout pattern on the hourly chart.

The constructive technical behavior of the Russell 2000 (^RUT) should have been a constant reassurance for the bulls during the more troublesome market conditions in June and July. Yesterday, by attaining the 720 level, it completed one of the principal targets that I had mentioned several weeks ago.


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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XLV  Health Care Select Sector SPDR  

Health care related stocks are generally behaving well and the sector fund XLV delivered the anticipated breakout yesterday.

PG  The Procter and Gamble Co.  

Procter & Gamble (PG) looks set to challenge the late March closing high near to $70.