The S&P 500 cash index (^SPC) recorded a narrow range Spinning Top formation yesterday which is extending the series of inscrutable patterns that have been forming this week as the index straddles the 1300 level. Little new information is being supplied as to when we should expect a run back towards the 1325 level but our suspicion is that there may be a lot of big guns that are sitting on the sidelines waiting to test the conviction behind such a move.

The Nikkei 225 (^N225) has registered a tiny Doji candlestick in overnight trading. The index could have reached a level where the strong upward channel since mid July may now have encountered an area of resistance.

The CBOE Volatility index (^VIX) has moved back towards the spring lows around 12 after the spike up to 24 during the mini contagion episode that spooked fund managers in early June.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY AUGUST 23, 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 mentioned XMSR on Monday as revealing a bull flag formation and yesterday the stock obliged with a 20% surge. What is especially notworthy about the pattern is the divergence between the downward slant to price during the pullback channel and the upward slant on the money flow chart.

Carnival Cruise Lines (CCL) looks like it will rally further out of an embryonic bull flag formation.

New Century Financial (NEW) could be an attractive risk/reward proposition on the short side as it approaches $44.

Yahoo (YHOO) still looks as though it will find renewed selling as it tries to break above $30.

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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