Recent price congestion was loosened up somewhat yesterday especially with regard to the large Nasdaq stocks and the small and midcap issues. Whereas the S&P 500 only managed to produce a 0.3% gain on the session, the Nasdaq 100 (^NDX) steamed ahead with a 1.9% gain (Oracle's report from Wednesday was undoubtedly a shot in the arm for the tech bulls) and the Russell 2000 (^RUT) registered a healthy 1.5% gain as well as a more than one percent gain for the midcaps.

The S&P 400 Midcap index (^MID) has a well defined triangular formation whose apex coincides with the converged moving averages. The chart reinforces the view that we have been in an extended trading range since the summer correction and suggests that in the intermediate term we should be expecting a significant directional breakout.



The Nasdaq 100 (^NDX) was the stand-out performer yesterday, and the chart reveals a similar triangular pattern to the one we just reviewed but with a more clearly defined upward bias. Could it be that technology will re-assert the leadership required to drive the overall market higher despite the growing prospects of a serious slowdown in those markets with the most debt burdened consumers and deflating real estate markets?



In Friday morning trading across the European markets, an impressive upside performance is gathering pace. The chart below shows Germany’s Dax index (^GDAXI) as it stands while this is being written. The index has pierced above the 8000 level and in all likelihod we could be setting up for a testing of the December 12 intraday highs just above 8100. A strong plus for the German economy is the fact that consumers have been much less exposed to the "wealth effect" of puffed up real estate bubbles.



Problems are mounting for the UK economy. Public sector borrowing is way ahead of the government's forecast, there has been a collapse in commercial property prices that has forced a major investment fund to suspend redemption privileges to investors, and there is the continuing embarrassment for the government of what to do with Northern Rock.

One of the most conspicuous casualties is the pound and the avalanche like fall from its elevated status above $2.10 just a few weeks ago is apparent on the chart for the exchange traded fund, FXB. There is possible support from the 200-day EMA level at $1.98 but a near term target level at the August lows of $1.95 would seem to be the more likely scenario.



Commscope (CTV), featured here yesterday, did manage to pull away from key moving averages and I would favor a continuation move up towards a target of $55.



California Pizza Kitchen (CPKI) faces a hurdle at the 50-day EMA but the MACD divergences are supportive and yesterday's move ahead on above average volume was constructive.



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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