The S&P 500 (^SPC) lost ground yesterday after breaking above a trendline through the highs in Monday's session and also regaining its foothold above the trendline through the lows. The index now sits in an interesting neutral zone about half way between the Oct 9 high and the October 19 low as the markets prepare for today's FOMC announcement.



The chart for the CBOE Volatility Index (^VIX) is revealing a triangular pattern which is often a precursor to a strong directional move.



The consumer discretionary sector fund, XLY, has a bearish looking pullback pattern that may well find resistance at the $37 level.



The oil services sector fund OIH is also revealing a bear flag formation that was breached to the downside with yesterday's decline of more than four percent.



In view of today's market moving news and potential for chaotic trading conditions, I am avoiding any new positions. I would like to point to a comment that I made in my weekend's commentary, "Another group of stocks that have risen very dramatically and that may be due for a rest are the shipping companies and the chart for Dryships (DRYS) is revealing signs of waning momentum and fading money flow."

The 17.5% drop yesterday was an ample reward for the short trade that I entered during Monday’s session.



Excel Maritime (EXM), also in the shipping sector, even outstripped Dryships'rewards on the short side with a 20% drop yesterday. Such large corrections in a single day are not too surprising given the run-ups that these stocks have enjoyed but,if the declines become even steeper, they may be pointing to a more measured re-appraisal of impending global economic activity.



Alas not all of the short candidates mentioned in the weekend commentary performed in line with expectations. Cepheid (CPHD) was a big riser yesterday and blew through my stop with a more than nine percent rise on the day.



Haliburton (HAL), which I discussed on the short side in the weekend's commentary, has dropped more than five percent this week so far and although I exited the position on yesterday's close this could have further to fall in the intermediate term.



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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