The S&P 500 explored a slightly expanded upside range in yesterday's trading but finished more or less where it began. While the index remains indecisive and below the 1280 level we remain cautious about how much momentum there is behind the positive tone that was seen at the beginning of the week. If the index can close above 1280 on heavy volume we may be tempted to cast our scepticism aside.

Reviewing the sector action it is possible to discern a growing split within the market between the economically sensitive sectors that ultimately hinge on discretionary spending by the consumer and the more defensive sectors that are considered to be relatively immune to a slowing in the economy. One of the sectors that is notably retreating is the transportation sector. The Dow Jones Transportations dropped below its recent lows yesterday and could be preparing to erase its year to date gains in the near term.

While some sectors are weakening on the perception that growth is slowing one of the principal beneficiaries has been the utilities sector. With long term rates now back in the neigborhood of five percent the Dow Jones Utilities are continuing to explore new highs.

It is not only the US indices that are having difficulty breaking above the trendline connecting the highs over the last three months, the Nikkei 225 index shows exactly the same pattern. The overnight move of almost 2% has brought the index almost exactly to the same juncture that can be seen on the S&P 500.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JULY 27, 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.

Nokia (NOK) has a constructive formation and the volume characteristics are favoring the long side.

Getty Images (GYI) did not receive the same attention that Amazon received yesterday but its fall from grace has been quite dramatic. We like to keep an eye on stocks that have experienced a major gap down on heavy volume as these events rarely come in isolation. Yesterday's plunge has brought the stock down by more than $30 in the last three months. It would be worth another look later next week for a shorting opportunity following an expected pullback from yesterday's nosedive.

Genentech (DNA) has moved up over the last few sessions without showing any convincing volume characteristics. It may run out of steam as it tries to move above the 200-day EMA.

General Motors (GM) clearly surprised the market yesterday with much better earnings than expected and Ford was rewarded with a 2.4% gain on the day as well. Yesterday's candlestick formation - a Doji with long legs - is also poised at the descending trendline through the highs since late March.

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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