Divergent performances among the major US equity indices have been showing up in recent sessions. While the DJIA lost 85 points or 0.6% in yesterday’s trading and a smaller loss was experienced by the S&P 500 (^SPC), the Nasdaq Composite continued its steady ascent into multi-year highs territory with another 0.3% increase.

The outperformance by the technology sector could continue for some time without necessarily posing technical difficulties for the overall market, but the sense of a need for a period of consolidation after recent gains may cause some fund managers to begin taking some of the gains from Nasdaq stocks off the table.



The Russell 2000 (^RUT) registered a tiny doji star candlestick that was also an inside day and still has to find the requisite excuse to challenge the all-time high that was recorded on July 13. In my work I have focused on the coincidence of range contraction templates at pivotal chart level and finding an inside doji close to a historic high is sometimes indicating a trend inflection point.



The index for the oil services sector (^OSX) has resolved the recent period of congestion, which initially appeared to be a harbinger of a corrective phase, by breaking away to new highs. Overall the oil stocks look to be extremely well supported, and the chart pattern on the related oil index (^XOI) suggests that these stocks are poised for an upward breakout as well.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY OCTOBER 11, 2007

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.

Kellogg (K) has a tiered bearish flag formation.



Lexmark (LXK) surged by more than six percent out of a well defined bullish flag formation.



The banking index has encountered resistance at the 200-day EMA and several charts for individual banks are showing that there are strong hurdles above to overcome. Wells Fargo (WFC) registered a lower intraday high in recent sessions and will have to mount a determined effort to break through the $38 level.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market. He specializes in market neutral investing and and is currently working on a book about the benefits of trading with long/short strategies, which is scheduled for publication later this year.

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