One of the most notable features of last week's action as a whole, and in particular the latter part which coincided with the pullback, was the subdued volume. I remarked last week that the S&P 500 (^SPC) has not, as yet, put in a determined run to break free from the descending trend line through the highs since last October, but on the other hand, there appears to be a lack of conviction among the bears about retesting key support levels.

Cross currents continue to dominate and the market is thrashing around in search of a direction and yet, stepping back from the day to day gyrations, we are basically confined within a relatively narrow range. As marked on the chart, the trading channel which has been in place throughout most of the quarter that is about to end essentially lies within one hundred points between 1280 and 1380.

I maintain a relatively bullish stance and believe that a realizable target within the next few weeks is 1415-1420 which marks the 200-day EMA and also the 50% retracement level from the October 2007 high and the January and March lows. Although I attach less probability to the alternative outcome, it is still worth reiterating that there remains a viable possibility that we could break down from the descending wedge pattern that we are still confined by. The key support level is 1260 and things would get ugly if we drop below this.



The chart for the Dow Jones Transportation Index (^DJT) diverged significantly from other broad indices during the mid-March weakness. The chart formation shows that the March lows were considerably above the January lows and an ascending wedge pattern is developing which is often a precursor to an upside breakout. Further retracements would encounter layers of support initially at the 200-day EMA which is just below Friday's close. For an overall bullish perspective on the market to become more compelling one would want to see another move up towards a challenge of the 5000 level in coming sessions.



I shall also be watching the sector fund, XME, which is designed to track the total return performance of the S&P Metals & Mining Select Industry Index. The technical characteristics suggest that the sector is undergoing distribution and there has been a succession of lower highs in recent weeks.



I was early in my comments in late February that BVN had some typical topping characteristics but following the plunge that took place on March 19 the mining stock has pulled back to a level where there may be further selling ahead.



Freeport McMorran (FCX), one of the world's largest copper mining companies, also looks as though the pullback may be close to having run its course in the near term.



I shall be watching PMC Sierra (PMCS) during the course of the week for an entry opportunity on the long side as the pullback extends down towards the 50- and 200-day EMA's.



Ross Stores (ROST) has a favorable-looking pattern on the long side.



In the telecom sector, the two Scandinavian competitors Ericsson (ERIC) and Nokia (NOK) also appear vulnerable after pulling back from the very weak sessions that both experienced on March 19.



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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