After Thursday's powerful rally many of the indices had a quiet session on Friday with a slightly negative bias. The S&P 500 pulled back just two points to close at 1270 and the DJIA dropped 40 points to close at 11,150.  An exception to this, and one of the strongest performances for the day, was registered by the Russell 2000 (^RUT), which managed to continue its very strong performance from last Thursday and tack on another 1.4% gain. There was a certain amount of special maneouvring for all of the Russell indices on Friday as this was the designated day for the annual re-balancing exercise, and also another factor was the tactics of fund managers who were casting their portfolios in the best possible light at the end of the quarter.  We would expect to see the 740 level tested, but we would also not be surprised to see some retracement first.

We wish all of our American readers a happy July 4th holiday and we will return next Thursday morning.

The Nasdaq 100 cash index closed out the week at 1575 and pulled back 0.7% on Friday. On the cash index there are hurdles to cross at 1600 and again at 1640 while on the QQQQ proxy the area around 40 will probably restrain momentum upwards in the near term. As the chart for QQQQ clearly reveals there was some anticipatory accumulation taking place in this index proxy prior to the recent recovery. But also noteworthy is Friday's subdued volume.

The yield on the ten year note retreated from the multi year highs that were registered in the middle of last week prior to the FOMC meeting. The yield has dropped by ten basis points since last Wednesday and we would expect the 5.1% level to be tested this coming week but we are curious to see whether traders will want to test the area just below 5% which was reached in early June.

The gold index (^GOX) has rallied back towards 150 which, in reviewing previous support/resistance levels, may provide some short term difficulties for the sector.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY JULY 3, 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.

Digital River(DRIV) shows an inside day following the heavy volume session on Thursday in which the stock spiked down and appears to have found support. We would target the $44 level which is also close to the 50 day EMA.

STEM recorded five times its average daily volume on Friday and the price pattern looks constructive.

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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