Inflationary concerns were once again a primary theme in yesterday's trading. Producer prices climbed by more than expected although the so called "core rate" which excludes the items that are most volatile only increased by 0.1% which was lower than expectations. Continued weakness in many commodities also may have helped to alleviate the headline PPI numbers and Treasury yields also continued to fallback following last week's advances.

The net effect was that there was little new information to assist us in gauging the chart patterns other than the possibility that the indices are in the process of consolidating in what may turn out to be temporary pullback patterns. The Nasdaq Composite (^IXIC) however continued its decline and declined 0.4% as it hovers around the 200 day EMA. The 2006 low lies a further 40 points below yesterdayââ,¬â"¢s close at 2189.

The Russell 2000 (^RUT) registered an inside Doji candlestick formation yesterday which might be pointing to a respite from the five consecutive down days.

We like to review the Nikkei 225 from time to time and as the chart below shows this index has now approached a key chart level in the context of its recent corrective phase. Mondayââ,¬â"¢s large drop went largely unreported and in todayââ,¬â"¢s (17th) action the index bounced off the 16000 level leaving it now poised at the trendline through the 2006 lows.

The retail sector index (^RLX) fell back 2.2% yesterday and closed right at its 200 day EMA. We have included the chart for the ETF for the retail sector, RTH, which is displaying some whipsaw activity in what can also be interpreted as a bull flag failure. If the sector fails to find support at the 200 day EMA level this would be a useful indicator regarding overall sentiment deterioration.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MAY 17, 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.

Medtronics (MDT) has evidence of accumulation and positive momentum divergences.

The chart for one of the DJIA components, MMM, is showing signs of waning momentum and distribution.

McAfee (MFE) has pulled back towards its 50 day EMA following the late April gap up on heavy volume and we may see some further buying interest.

Last week we commented that the chart for Google (GOOG) appeared to be in the process of creating a bull flag failure pattern and the stock has continued to display weakness. There may be a recovery effort as it approaches the 200 day EMA but we would not be surprised to see another re-testing of the March lows around $340.

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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