The major index proxies SPY, DIA, and QQQQ all registered very quiet volume in yesterday's session. SPY barely achieved fifty percent of its 15 day average volume as the markets contended with a Monday in August and a pending interest ration decision from the FOMC.

If the FOMC hold back on a further rate rise it will be crucial to see whether traders can successfully break through Friday's failed spike to disentagle the index from the 1280 attractor. If the FOMC do add another quarter point we would expect to see a sharp reaction as we suspect that this is not what the market is expecting. But whether we get another hike or not it may well be the inevitable scrutiny of the accompanying statement that will attract the most commentary.

The Nasdaq Composite index (^IXIC) is showing signs of a developing flag formation and last Friday's high could mark the zenith of the ascending channel unless the markets welcome the FOMC decision.

The ETF for the consumer discretionary sector, XLY, is at a critical juncture. As the chart shows the trend lines are about to intersect and the longer duration trend line through the highs since March proved problematic last Friday.

One of the most important charts to keep an eye on this week will be for the yield on the ten year Treasury note. The yield is positioned at the bottom of the recent range and if we were to move decisively lower this would suggest that Treasury traders at least may be starting to discount a recession on the horizon.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY AUGUST 8, 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.

The semiconductor sector fund, SMH, is showing signs of wanting to make up ground from its long decline since March.

The same comment can be made for Jabil Circuit (JBL).

CTSH looks as though it will eventually retreat further but it may try to stage one more attempt to move higher first.

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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