Microsoft's earnings and guidance after the close last night should provide further underpinning for the recent relative out-performance of the large Nasdaq stocks. The Nasdaq 100 (^NDX) does face some chart resistance just above yesterday's close, but it is in the vicinity of the 1900 area on this index that I would expect the counter-trend rally to run out of steam.

In overseas action the Hang Seng (^HSI) is racing ahead again with a more than six percent gain as this is being written and with the Nikkei 225 ahead by more than four percent when it concluded Friday's trading. The Japanese index is approaching levels where the risk/reward ratio favors new positions on the short side.



The S&P 400 Midcap index (^MID) was surprisingly more lively than the larger cap indices yesterday which was also in sharp contrast with the Russell 2000 (^RUT) which went nowhere during the rally continuation.

Reviewing the likely resistance levels I would suggest that 800 could pose quite a challenge for the midcap index.



As suggested yesterday there is still scope for profit on the short side in the Treasury complex and I would expect to see yields reach back towards 3.8% in the near term.



Mentioned here yesterday as a candidate on the long side Asyst Technologies (ASYT) provided an attractive entry opportunity and delivered a healthy ten percent return on the session.



On Tuesday I suggested that CYMI would make it back towards the 50-day EMA and this target is close to completion. At this level I would be looking to reverse to the short side.



The chart for Microsoft (MSFT) is very intriguing and reveals, on an extended basis, a slightly unorthodox version of William O' Neill's cup and handle pattern. In particular the key level for this configuration sits between $30 and $31 and this acted as support during the turmoil earlier this week. The chart looks very positive on the long side in the longer 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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