The indices failed to follow through on Tuesday's reversal patterns and in fact produced a session of considerable weakness. The S&P 500 broke below the 1280-1260 zone which had previously confined all of the trading in July and the index closed at 1258 for a loss of 1.1% on the day. The close was below the current levels of the 50 and 200 day EMA.

Growing uneasiness about the situation in the Middle East is unsettling European markets as this is being written.  This will add extra challenges as the US markets open and we would not be surprised to see a retreat towards 1240 during today's session.

The weekly chart for the Nasdaq 100 (^NDX) illustrates clearly the somewhat precarious state for this index. The trendline through the weekly lows was broken as the index moved below 1560 and if we fail to find some support in the vicinity of 1500 it looks as though we may well be headed towards 1440.

Many charts are revealing a marked inability to break above the descending trendlines throug the highs since May. The Russell 2000 is a clear example and we suspect that 680 could be a target in coming sessions.

The broker/dealer sector (XBD) is also showing how this index is reaching a critical juncture as it is confined above by the trendline through the highs and is now in danger of violating the line through the lows since mid June.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JULY 13, 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.

Ford (F) registered a tiny Doji formation yesterday as it is poised just below the trend line through the highs from the year so far.

IGW, one of the ETF's for the semi-conductor sector surprisingly registered an inside day on heavy volume yesterday

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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