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This column was originally published on RealMoney on June 26 at 11:09 a.m. EDT. It's being republished as a bonus for readers.

The major indices have dropped into a sideways patterns ahead of this week's

Federal Reserve

meeting. This wait-and-see price action will discourage most traders from placing big bets on either side of the market. But that will change in a hurry once big money responds to the numbers and tone of the latest interest-rate decision.

The market might be coiling for a recovery rally, but I won't stake my reputation on that prediction just yet. I've been forced to take a more cautious view of price direction after getting burned badly by premature bottom-calling last month. These days, I'm perfectly content to sit back and let the market show its hand while I keep my big mouth shut.

This strategy has benefited my bottom line greatly in recent weeks. This perennial swing trader is holding few overnight positions and committing most of his energy to scalping quick day trades. It's my response to a brutal environment that doles out punishment to anyone foolish enough to commit aggressively to overnight positions.

And the daytrading has been absolutely fabulous this month. Volatility is high, the crosscurrents are vicious and there's little commitment to price levels by market players who usually stabilize the ticker tape. Cody Willard refers to these sudden and violent price swings as dislocations. I like to think of them as pretty little profit-makers.

But I can't wait for overnight positions to start working again. Clearly, it's a less stressful and more reliable way to earn a living in the financial markets. And if last week's price action is any indication, we're finally getting close to a fruitful period for swing-trading strategies, whether the market moves substantially higher or lower.

In the last few weeks, I've been pointing to price development in crude-oil and Internet and utility stocks as evidence the market will undergo a significant change of character as we start the third quarter. Despite last week's frustrating tape, more sectors are finally waking up from the dead.

Let's add these groups to my growing list.

The blossoming rally in the transportation sector began with a slow uptick in the airlines that persisted despite the firming of crude-oil prices. The initial move is spreading to other transportation subsectors at a rapid pace. How sweet it is to see a leadership group emerge in the midst of this market malaise.

JB Hunt

(JBHT) - Get J.B. Hunt Transport Services Inc. Report

shows how sector strength might feed on itself in the third quarter.

The trucker returned to its 2005 high in February and started to move sideways in a volatile pattern. Price perked up considerably last week and is now set to retest this year's high. This action will complete a cup-and-handle breakout pattern that sets the stage for a rally that could reach into the middle $30s by year's end.

Other transportation stocks that show bullish patterns these days include

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US Airways




(FDX) - Get FedEx Corporation Report





The Russell 2000 Index still looks stuck in the mud, despite a few good sessions last week. But certain elements in the small-cap universe are catching my attention. In particular, many small-tech stocks that outperformed this quarter are setting up for a run to new highs.

Smith Micro Software

(SMSI) - Get Smith Micro Software Inc. Report

is a great example.

The stock hit a six-year high at $16 this month and pulled back to the 50-day moving average. It bounced at this support level two weeks ago and has been in a steady climb since. It looks like "all systems go" for it to test the 2006 high.

I'd normally expect another pullback there, but there is one factor that supports an immediate breakout.

We're entering the last week of the quarter, when window dressing supports strong buying interest in stocks that are trading near 52-week highs. This raises the possibility that fund managers will trip over themselves to own this stock before July 1.

That pile-on process could yield an immediate run to new highs.

Other small-cap tech stocks that are showing bullish patterns include




Qiao Xing Universal Telephone



Sirenza Microdevices



At first glance, the chart of the Amex Securities Broker/Dealer Index doesn't look very good, but price action since April fulfills all aspects of a classic reversal called the Top-1-2-Drop-Up. This pattern signals a new bull advance when price breaks the trend line formed by the highs after the first and second selloffs in an Elliott five-wave decline.

The index rose to the breakout level in this scenario Friday and could confirm the bull signal sometime this week. But keep in mind that this group usually trades with the broad market because their profits go up when stocks rise and down when they fall.

I'd avoid new positions ahead of the rate decision, despite any early buy signals.

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At the time of publication, Farley held no positions in any of the stocks mentioned, although holdings can change at any time.

Farley is a professional trader and author of

The Master Swing Trader

. Farley also runs a Web site called, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;

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