The bailout plan has now become entangled in the high stakes game of Presidential Election politics and the outcome is now less certain than when the markets celebrated prematurely yesterday that it was a done deal.

Movement in the indices and the relatively unenthusiastic closing activity suggests that some traders were already anticipating some of this late in the day.

The Russell 2000 (^RUT) actually registered an inside day pattern and once again my attention is fixed on the fact that despite all of the drama and day to day gyrations the index has been in a trading range since March and at present is in a relatively safe harbor zone and less than two percent from the pivotal 720 level.

I would expect more volatility in the major indices until the rescue plan disarray is resolved and be looking for more longer term directional cues from whether this index breaks decisively above 760 or 660.

This is not to the rule out the possibility that in the intermediate term it could do both!



The S&P retail index (^RLX) looks vulnerable as the anemic pullback pattern faces stiff overhead resistance from two key moving averages.



Forex trading has been relatively subdued over the last few sessions which suggests that big allocation decisions are being postponed until the lie of the land for the toxic asset rescue plan becomes clearer.

I would expect that the exodus from the Australian dollar may have been overdone and see an opportunity to get long again about 83 cents.



The exchange traded fund GLD could be volatile short term, but there are positive MACD and MFI divergences on the chart below as well as evidence of a bullish pullback pattern.

Reviewing several sector charts there is some suggestion that the market is now taking on board the longer term implications of the bailout. There is a growing realization that what the US government is hoping to achieve with liquefying all of the dodgy derivatives is a major asset reflation.



There are positive momentum divergences on the chart for the sector fund XOP which reflects prices across several energy exploration companies. There may be no rush to get involved here but the pattern suggests that this sector looks as though it is in a basing pattern.



SZK, which is an inversed and leveraged play against consumer stocks, looks to have positive divergences suggesting that some traders are focusing on troubles ahead for the US consumer.



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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