Following Monday's break to a new multi-year low, the S&P 500 (SPX) reversed most of the losses from Monday but also registered an inside day pattern.

It will be interesting to observe whether the rally can be further energized by President Obama's speech to Congress last night, but the lack of specificity on ways of resolving the banking problems will continue to weigh on sentiment. Difficult decisions need to be made about how to reorganize institutions that are proving to be massive black holes - AIG might just be the largest financial black hole ever- and no amount of oratory is going to ease the pain that has to be endured.

If the market can maintain some upward momentum there will be sellers looking to get short again at 805 and even more around 820.



The Nasdaq Composite (IXIC) also produced an inside day, and, as the annotations to the chart below suggest, this index would face a real test at the 1500 level.



The exchange traded fund ACWI is designed to track the MSCI All Countries World Index, and once again it becomes clear just how closely the numerous global equity indices track each other. Even to the point that yet another inside day pattern was registered.



The decline in the Japanese yen is continuing, and, following the severe downward gap in FXY in yesterday's session, the target of 102 that I talked about last week has almost been achieved.

While reducing the position size and taking some profit off the table at this stage would be advisable, there still seems to be plenty of scope for even lower levels to be explored.



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.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.