The Dow Jones Industrials moved up another 0.3% yesterday to close at 11,438 while the Nasdaq performed some catch up from its recent lacklustre perforance. The release of employment data may unsettle the markets again today as it has done over the last three months.

We discussed yesterday the possibility that traders may have been satisfied that the 1680 level had been satisfactorily tested on the Nasdaq 100 cash index (^NDX). With a 0.9% gain yesterday, surpassing the performance of the DJIA and the S&P 500, perhaps the stage is being set for all of the indices to now move towards the key breakout levels. We need to keep an eye on the big Nasdaq names and the volume characteristics in coming days.

As an aside we discussed QCOM yesterday and once again the stock failed to breakout above the $52 level and registered a long tailed Shooting Star formation. We need to see stocks like QCOM move aggressively forward on strong volume to be sure that any breakout patterns are valid.

The Russell 2000 rallied out of its pullback channel yesterday and closed at 774 for a 0.9% gain with only one previous session on April 19th having a higher all-time high close.

The utililities sector has made a strong recovery over the last three weeks since it recorded a 2006 low on April 17th. The sector fund UTH is now poised at the trend line through recent highs and it will be important to see whether the sector can re-establish a new bullish trend.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY MAY 5, 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.

The charts for many of the investment banks are showing early stages of possible bearish pullback channels following the strong moves down on May 1.

Bear Stearns (BSC) is one example, and the charts for GS, LEH and MER all have similar formations.

Caterpillar (CAT) has moved back towards its recent highs on modest volume and could be about to register a lower high on the recovery. This could point towards a corrective phase ahead.

Similar comments to those we made for CAT could also be applied to GRP.

In the volatile airline sector JBLU appears to have a possibility of moving higher out of a pullback channel following the upward thrust on April 25th.

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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