The slide in the indices continued for another day but a late reversal, in the last hour of trading, saw all of the indices finish notably above their lows for the session. The Russell 2000 (^RUT) peeked below its 200 day EMA, but buyers appeared as the index approached its intraday low of 696 from May 24th. The key issue is whether the buyers were bargain hunters or short sellers deciding to take profits after two profitable sessions.

The S&P 500 dropped below its 200 day EMA but as we also commented for the Russell 2000, buying support appeared before the index touched its recent intraday lows. The Spinning Top formation with the long lower shadow points to a probable positive start to today's trading but, as we already discussed, the key to the market's longer term direction depends on whether fund managers are in the mood for bargain hunting or sitting on the sidelines, leaving the main activity to short term trading tacticians.

The Dow Jones Industrialsââ,¬â"¢ proxy DIA, broke down to a new low for the recent bout of selling but also managed to recover some ground into the close. As the volume chart reveals negative closes are associated with heavier volume and there is no evidence of accumulation activity.

The energy complex had a very weak session and the exchange traded sector fund, XLE, shows one of its widest red candlesticks as the sector fund lost more than 3% on very heavy volume.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JUNE 7, 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.

Google (GOOG) managed to disregard the weakness in the rest of the market and moved up 4.2% on above average volume. The MFI chart has been pointing to some recent accumulation and the stock could be poised for further progress.

One of the weakest sectors in the last few weeks, the homebuilders, continued to probe new 52 week lows. Pulte Homes (PHM) which was one of the standout performers in 2005 has now dropped more than forty percent from its late July 2005 high. The volume continues to build as the stock continues to gap down. This has all of the signs of a climactic sell-off but the sector is to be avoided as it's probably too late to be short and it would be heroic and foolish to be thinking about playing for a bounce.

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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