The S&P 500 cash index (^SPC) declined by 0.4% to close at 1293 as weak numbers from the housing sector are playing into concerns that the US economy, and specifically the consumer sector, may be showing more weakness than the soft landing consensus were expecting. With yield curve inversion and weakness in retailing, transportation and the consumer discretionary sector we would expect to see further sector rotation towards defensive stocks.

We are becoming more concerned that the overall market will find it hard to remain a firm tone without the participation of the small cap sector and we will be looking for evidence that the financial sector is beginning to discount problems from over-extended consumer borrowing.

The retail sector index (^RLX) has fallen almost four percent since it failed at the 200 day EMA late last week and now stands below all three moving averages.

We continue to be intrigued by the exchange traded sector fund for raw materials, XLB, which has a possible breakout of the steep triangular formation over the last few sessions. A similar "breakout" arose in early July on suspect money flow and we could be witnessing a repeat performance. If the sector is to break decisively upwards this would be discordant with the concerns that some asset managers are voicing regarding a slowing world economy.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY AUGUST 24, 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.

Bank Of America (BAC) has signs of fading momentum and distribution.

PMC-Sierra (PMCS) appears to be ready for another move upwards.

PLAB also looks like it could rally further as the money flow is going in the opposite direction to the declining price channel.

Boeing (BA) is moving further into a descending wedge that is bounded on the baseline by the 200 day EMA.

We would expect Cintas (CTAS) to rally further in coming sessions.

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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