The indices registered some divergent performances yesterday as the Russell 2000 (^RUT) slipped back 0.1% while the Nasdaq 100 gained 0.6%, the Nasdaq Composite moved ahead by 0.3% and the S&P 500 closed just half a point higher than Friday's close. The candlestick for the Russell 2000 shows a small body atop a longer lower tail which took the index below all three moving averages intraday.

Despite the relatively small changes on the day for the market indices there was a lot of evidence of key asset re-allocation taking place in yesterday's action. Commodity related stocks and energy stocks are being dumped, gold suffered a substantial pull back and the banking/financial sector appears to be churning as there is a noticeable absence of accumulation.

The Nasdaq 100 (^NDX) showed the best performance of the major indices yesterday but still needs to show that it can maintain closes above the 200 day EMA which lies just above yesterday's trading. Beyond that the 1620 level shows chart resistance.

The oil index (^XOI) continued its severe correction yesterday with another 2.4% decline yesterday and a close below the 200-day EMA. Since August 9, the index has fallen by more than 12% and appears to be headed back towards the levels just above 1000 which were reached in mid June.

The utilities are showing signs of a topping pattern and the exchange traded sector fund XLU is undergoing noticeable distribution.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY SEPTEMBER 12, 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.

The materials sector came under a lot of pressure as many commodity related stocks were liquidated. XLB dropped below the 50- and 200-day EMA's on almost three times the average daily volume. Further weakness and a close below 30 which approximates to the June lows for this sector fund would be a clear signal that asset allocators are pricing in a major global slowdown next year.

Home Depot (HD) acted very positively in yesterday's session with a trend day on above average volume.

Lyondell Chemical (LYO) has retreated quickly from its attempt to challenge the early May high. The intersection of the 50- and 200-day EMA could provide some temporary support in today's action.

Monsanto (MON) violated an upward trend line in yesterday's trading and would appear to be headed towards $42.

As discussed yesterday the gold and silver sector has performed an abrupt reversal since last week when an upward breakout effort failed. Newmont Mining (NEM) broke below the March and June lows and recorded a new low for 2006 in yesterday's trading. The $42 level from last November would seem to be the next target.

Chevron Texaco (CVX) has completed the trajectory to $62 that we set out in our commentary of August 17.

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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