The action on Friday would have jolted a lot of the bearish breakdown players that were becoming too enthusiastic on the short side. The chart pattern on the S&P 500 (^SPC) certainly reveals the twin surprises from trading so far in June. There was the surge up in the session prior to the most recent employment report and then last week's drop below key support levels.

My current inclination would be to expect an attempt to break back above 1380, but I would expect this to be accompanied by a lot of whipsaw behavior and the possibility of another bout of coordinated inter-market strategies involving crude, Treasuries and possibly more financial scare mongering thrown in for good measure.



The Nikkei 225 (^N225) produced a 2.7% rally in overnight trading in what was a good session generally for the Asian markets. The Japanese index now has to confront again a major hurdle at the 200-day EMA where it was rejected during trading on June 6.

The Shanghai Exchange stabilized exactly at the 200-week EMA that I discussed last week.



The doji star formation on the yield for the ten-year Treasury sits astride the 4.26% yield. Intraday on Friday the yields moved above 4.3% which is 100 basis points above the closing level seen on March 17. Further upside yield targets lie in the vicinity of 4.75% and date back to last October but it would not be surprising to see some consolidation at current levels first.



The Russell 2000 (^RUT) faces the 200-day EMA hurdle from below again after dropping below the 50-day EMA last Thursday. The last three-day pattern has most of the features of a morning star reversal candlestick but given the likely volatility this week we may well see another reversal off the 740 level.



Friday's suggestion that Southwest Airlines (LUV) presented an attractive opportunity on the long side delivered a more than five percent profit for what was essentially a one day trade.



Level 3 (LVLT) has an interesting chart pattern in which the early June breakout has now pulled back to a test of the line of possible support/resistance



In Friday's commentary I included a chart for Lockheed Martin (LMT) but unfortunately the comments were omitted. The point I was making was that there is clear evidence of overhead resistance in this pullback pattern and I would be surprised if the stock did not meet with some renewed selling as it tries to push above $106.



Goldman Sachs (GS) moved up in Friday's trading although the volume was not overly impressive. The 200-day EMA is a feasible target in coming sessions.



Nortel Networks (NT) surged ahead at the end of last week and may still have further upward momentum.



Varian Medical Systems (VAR) has quite similar dynamics to the chart for Nortel.



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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