We have selected an extended period for the daily chart of the Russell 2000 to give a larger perspective on where the index lies after the dismal performance in the latter half of last week. The index lost 4% during the course of last week which was slightly less than the losses for the Nasdaq Composite and the Nasdaq 100. Friday's close at 681 means that the index starts this week at a pivotal level. In the absence of the disturbing events taking place in the Middle East we would have expected some serious effort to stabilize at current levels.

With little progress on efforts to bring about a ceasefire in the Middle East and disagreement among G8 leaders in St. Petersburg about diplomatic initiatives, we may see a return to the October lows before the end of the week.

The Nasdaq Composite (^IXIC) suffered a 4.4% decline last week and for the index to regain the 2200 level which marks the level where the trendline through the lows was violated and also the level of the 20 and 50 week EMA now looks like a major challenge.

The weekly chart for the housing sector (^HGX) appears to be almost in freefall and it would not be surprising to see another ten percent lopped off this index before any chart support could be relied on.

The weekly chart for the retail index (^RLX) looks a little less foreboding than that for the housing sector but if one takes both charts together it is difficult to resist the conclusion that markets have serious worries about the continuing prosperity of the U.S. consumer.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY JULY 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.

We are relucant to offer any unqualified recommendations in the current environment. We would definitely not be actively seeking out short positions and we are hesitant about the long signals that are being generated by our pattern recognition algorithms. If the market can find an excuse to rally there are a couple of stocks that could move up quickly. One is Analog Devices (ADI).

Another candidate on the long side if the market mounts a relief rally is Broadcom (BRCM)

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.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com.  There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarante of future results.  Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.