The S&P 500 cash index (^SPC) pushed up to a new multi-year high yesterday of 1318 but completed the day close to where it started to register a Doji Candlestick with long upper and lower tails. Breaking through the resistance at 1310 has proven to be a very difficult task for the bulls and it may be that we need to consolidate the mid week gains before taking on the challenge.
The Russell 2000 cash index (^RUT) opened on its high and closed down by a modest 0.5% following its two days of sizable gains.
The semiconductor sector, as represented by the exchange traded fund, IGW also met resistance at the top of its range as the long upper tail demonstrates. It is plausible to see the most recent formation as conforming to the classic cup and handle pattern popularized by William O’ Neill. If this interpretation is correct we could see a breakaway gap in coming sessions.
Amongst the casualties in trading yesterday were the gold mining stocks and the metal itself. As the chart illustrates the recent breakout was retraced and the least convinced momentum players that have been buying the sector based on the recent upward thrusts will probably have been shaken out by the dramatic reversal. But we suspect that there is a lot more upside ahead.
TRADE OPPORTUNITIES/SETUPS FOR FRIDAY APRIL 21, 2006
The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions. None of these setups should be seen as specifically opportune for the current trading session.
Although we took a profit on one half of our long position in Apple yesterday we were rather disappointed by the action after reporting better than expected earnings.
Capital One Financial (COF) has been hovering around its EMA's for several sessions with evidence of accumulation.
We would favor a long position for Emulex (ELX) as it looks set to break out from a pennant formation.
Wynn Resorts (WYNN) looks to be fading but the stock has been in a long uptrend and there may be little to be gained from any short term weakness.
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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