The equity indices have a lot to contend with as the weekend approaches. The situation in the Middle East could escalate over the weekend beyond Lebanon to involve Syria and indirectly Iran and the oil markets are understandably very nervous about threats to oil supply from the region. The earnings season, including GE today, is producing some unpleasant surprises and there are growing concerns about retailing and consumer discretionary expenditures as energy prices continue to climb.

Yesterday's sharp drop of 1.3% for the S&P 500 index violated the rising trend line through the lows since mid June and we may be headed back towards the 1220 level that was touched on June 14th. On the upside 1260 could now prove to be a difficult hurdle for any relief rally.

The Nasdaq Composite (^IXIC) suffered a 1.7% decline yesterday and as the longer term daily chart reveals the index is surely poised to re-test the lows from last October. The Nasdaq 100 has already transgressed the October lows and may well be headed, eventually, towards the lows from April 2005 just above 1400.

The Russell 2000 (^RUT) declined two percent yesterday and is approaching the pivotal level of 680. In mid June the index reached just below 680 and found support but if this current malaise sees us take out that support convincingly the longer term prospects for the small caps do not look good.

The banking index left a small gap on its daily chart yesterday as it dropped 1.2%. The index since May has a fractal pattern with a series of triangles that are themselves nested within a larger triangle. Despite the upward break out from the mid-June triangle the last two sessions have re-asserted the bearish dynamics that are visible on the chart.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JULY 14, 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.

Travel related stocks were big casualties yesterday and in the hotel sector Marriot (MAR) took a big hit even after reporting better than expected earnings. We are reticent to make any specific recommendations in the current market environment as the charts can be sending one message whereas the geopolitical concerns are providing cues of a very different nature.

Also suffering in the hotel sector was Four Seasons (FS) which also fell hard on more than twice the average volume.

American Airlines (AMR) also saw fall out from the double impact of higher energy costs and concerns that discretionary travel could be put on hold as the Middle East moves closer to a full blown war.

Nucor (NUE) was another big loser yesterday as it fell by 8% and the chart looks as though we should expect further weakness down to the 200 day EMA in coming sessions. We may however see an ascending pullback channel emerge and if so this would provide a good opportunity to get short near $52.

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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