Quiet trading at the end of last week allowed a recovery from the rather ominous looking charts that were apparent at the conclusion to last Wednesday’s trading. Many indices peered over the abyss during last Wednesday’s session but managed to pull back towards the close and remained above key support levels.

The S&P 400 Midcap index (^MID) retreated to the 820 level as discussed in our last commentary but it is possible that the impending holiday on Thursday acted as buffer that allowed traders to postpone a thorough testing of the mid-August lows.

Friday’s session saw a bounce which may have further to run as sentiment will have been given a boost from positive retail numbers. However, with conditions in the money markets still posing real liquidity problems for many, I would be surprised not to see the 820 level tested again more robustly in coming sessions.



The Nasdaq Composite (^IXIC) transgressed the 200-day EMA last Wednesday but then returned above it in Friday’s extremely low volume session.



The yield on the ten year note has declined by 125 basis points since June resulting from a growing consensus that the direction of short term rates is down and decisions by asset allocators to seek the safety of Treasuries in preference to their aversion to many other financial assets. The risk/reward ratio now favors short sellers of Treasuries especially as analysts and commentators celebrate the better than expected news about the vitality of the US consumer at the beginning of the peak shopping period.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 26, 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.

McGraw Hill (MHP) has quite noticeable positive money flow divergences.



Sterlite (SLT) reveals successively lower highs.



The exchange traded fund US Oil (USO) that tracks the performance of West Texas Intermediate crude is revealing some momentum and money flow divergences.



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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