The S&P 500 (^SPC) and the Russell 2000 (^RUT) both registered small body inside day candlesticks in close proximity to their respective 20-day EMA’s. After Wednesday’s whipsaw session the sharp diminution of intraday volatility yesterday could be a precursor to a more directional move either in either today’s trading or early next week.

It feels to me that the market is at a fairly significant inflection point in which seasonal tendencies as we move towards Thanksgiving will be favorable but where there has recently been a deterioration in the underlying positive dynamics that allowed us to recover so decisively after the turmoil in August.



The banking index continued to drift lower in yesterday’s action. As the chart reveals, the bearish price action since the index dropped below the 50-day EMA on October 12 has transformed the triangular formation from one with a positive slope through the lows and a suggestion of an imminent upward breakout towards one of a potential break down to new 52-week lows.



The Bombay Sensex index (^BSESN) has encountered major turbulence after piercing above the 19000 level which,from a fibonacci point of view, represents a 262% uplift/extension of the swing high and low that tracked the August correction. The chart below is as of Thursday’s close and as this is being written the index, which still has two more hours to trade on Friday, has retreated by a further three percent.



TRADE OPPORTUNITIES/SETUPS FOR FRIDAY OCTOBER 19, 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.

Rowan Companies (RDC) has broken out from a rising wedge formation with two days of volume that is twice the moving average. Further upward progress is to be expected with a possible target of $44.



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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