The S&P 500 managed to register a close above 1300 last Friday as it gained another 0.4% in what turned out to be a very constructive week for the bullish camp since the sell-off in early May. The index lays less than two percent from its multi-year closing high of 1325 and as we have suggested this must be a feasible target for the near term.

Growing divergences are appearing and we suspect that there will be several major index players that will pick their moment to test the air pockets that are beginning to register on many individual charts.

The Dow Jones Industrials gained almost 300 points in last week's trading and as with the S&P 500 the near term target would appear to be the May closing high, reached on May 10 at 11642 which itself was just 80 points below the all time achieved on January 14 2000. The chart below for the DIA proxy is pointing to some of the money flow divergences that are becoming apparent on many charts.

The Nasdaq Composite (^IXIC) gained close to five percent last week and for the first time since mid May is looking as though it wants to close above the 200-day EMA.

The exchange traded fund for the pharmaceuticals sector, PPH, is revealing some quite noticeable negative divergences and could be close to a near term top.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY AUGUST 21, 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.

Baxter International (BAX) is well supported by institutional asset managers but is one of the stocks that has evidence of the air pockets that we alluded to earier

EnCana (ECA) is showing topping characteristics and there appears to be a mini bear flag formation.

XMSR has a bullish flag pattern but needs to make a move up very soon or it could be a failure pattern

Continuing the theme of negative divergences Lockheed Martin (LMT) looks vulnerable and we would be looking for the first cracks in the armour to take advantage of a correction phase.

St Jude Medical (STJ) has rallied back from its recent slump but could be at a level where the sellers will be re-energized.

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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