The broad market continued its retreat yesterday and the S&P 500 pulled back to 1294 and closed marginally below the twenty day moving average. Given the magnitude of the two day correction it may be that traders will want to retest the 1280 level over the next several sessions.

The banking index (^BKX) produced a range expansion session which may have tipped the balance in favor of a break down out of the very pronounced series of triangles that are evident on the chart. Although the index produced a false break down in mid July, yesterday's long red candlestick dropped decisively below the 50-day EMA and suggests that the 200-day EMA may be the next target.

The Russell 2000 (^RUT) has pulled back three percent over the last two session but has reached an area where all three moving averages intersect. Further erosion in this index would be a cause for concern amongst the bullish camp.

The retail index (^RLX) registered a striking Doji formation yesterday with a long upper and lower shadow that straddles the 50-day EMA. This sector could be a useful barometer in coming sessions as to the changing market sentiment that is centred around the growing concerns about a slowdown in consumer spending in 2007.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 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.

Avon Products (AVP) has recovered from the late July/early August sell-off but it has now entered aa price zone where further selling may emerge.

Franklin Resources (BEN) has evidence of distibution and waning momentum as price appears to be stalling.

KLAC managed a 2.6% gain on above average volume in yesterday's negative session.

Overseas Shipholding Group (OSG) is undergoing distribution as the momentum declines.

Overstock (OSTK) is in a constricted range and there has been recent accumulation.

SSCC registered a long tailed hammer candlestick that bounced off the 50-day EMA

Price action in Wells Fargo (WFC) in coming sessions will help to clarify the overall state of the banking sector.

Wynn Resorts (WYNN) may be in the process of registering lower highs than the levels achieved in April and May.

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.

Disclaimer
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