Evidence of a more marked slowing in economic activity than expected unsettled the indices yesterday. While the FOMC announcement on Wednesday helped to reinforce the current soft landing outlook, the one chink in the armor is the possibility that consumers are becoming increasingly cautious as the wealth effect derived from a previously buoyant housing market gains is diminishing. The S&P 500 pulled back 0.5% after Wednesday's rally back to the May high.

Treasury market traders reacted decisively yesterday to the weakness revealed in the Philadelphia Fed survey slicing eight basis points from the yield on the ten year note. The 4.5% level would seem to be on trader's radar screens but it is worth mentioning that when this was last visited short term rates were 75 basis points below where they are now.

The exchange traded fund for the retail sector pulled back 2.3% on above average volume after managing to push above the May high.

Semiconductor stocks proved to be one of the weakest sectors in yesterday's trading and the exchange traded SMH fell back 2.6% on almost twice the average daily volume. The sector closed below the 20 and 200-day EMA's and seems destined to revisit the 50-day EMA level near $32.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 22, 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.

Hewlett Packard (HPQ) continues to feature in news stories but until yesterday had managed to maintain its poise. After yesterday's developments and price action the stock looks more vulnerable to further selling.

Walgreen (WAG) succumbed to further significant selling pressure after the brief pullback that followed the large red candle that arose on September 13th. We would step aside in the near term, following the more than seven percent decline yesterday, but further opportunities on the short side may present themselves when the stock mounts a counter-trend recovery rally.

Mylan Labs (MYL) may need to retest the support level at $19 that was touched in July. Notable on the chart is the lower high during the most recent relief rally.

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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