The chart for the S&P 500 finally came to life yesterday and traders found the excuse they were looking for to rally through the 1280 level. We mentioned yesterday that in the quiet trading that is characteristic of August there was a danger of being lulled into complacency with the rather predictable patterns that had been in evidence recently.

It would seem that the bears were the complacent ones and they sprang into life when the market decided, yesterday at least, that inflationary concerns had been a little overdone. The index now needs to take out the intraday high of 1292 from August 4.

The chart for the Nasdaq 100 (^NDX) shows the first close above the 50-day EMA for several weeks. Admittedly the EMA line has been in steady decline but the 2.7% rally was accompanied by many tech stocks finally showing signs of life. The index faces significant hurdles in the region of 1600.

We mentioned yesterday that the yield on the ten year note would probably encounter temporary resistance at the five percent level and the sizable retreat of seven basis points was certainly a contributory factor to yesterdayââ,¬â"¢s rally in equities.

One of the two sector funds for the semiconductor stocks, IGW, moved above a key level yesterday but the volume was less impressive than it might have been.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY AUGUST 16, 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.

Redback which was mentioned here yesterday powered further ahead with another 13.6% move to the upside.

EBAY moved up 3% yesterday and as we mentioned here last week could be on its way to $28.

Qualcomm (QCOM) shows positive money flow and momentum characteristics (along with several other Nasdaq 100 stocks).

Adobe (ADBE) may have sufficient momentum to keep going to $36 before it runs into resistance.

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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