The large cap stocks are providing the leadership at this stage in the rally. The DJIA and S&P 500 both registered gains of 0.8% yesterday while the Nasdaq Composite moved forward 0.5% and the Russell 2000 was the under-performer with a 0.3% gain. The DJIA closed just 53 points shy of its all time high of 11722 which was achieved in January 2000.

The Nasdaq Composite (^IXIC) closed at 2261 and showed signs yesterday of a certain reticence in extending its recent gains. There were some other signs of market dissonance as well as some stocks favored by major fund manager are displaying potential breakout patterns but also beginning to look over-extended while many other stocks look to be entering corrective patterns.

The pharmaceutical sector fund PPH has enjoyed a sustained rally but could be drifting in a continuation pattern that lacks conviction.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY SEPTEMBER 27, 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.

ENER could be preparing to attempt to breakout of the long standing sideways pattern that extends back to mid-June.

We repeat our comment from yesterday - It is unlikely that the selling which hit Ford (F) quite hard two week ago has run its course and as the stock has rallies back toward $8.40 there may be further efforts by fund managers to lighten up or liquidate their holdings.

Using some similar logic to our note on Ford there could be some renewed selling for International Paper at the $35 level.

Manpower (MAN) produced a Spinning Top on above average volume in the context of a bullish flag formation and may be headed to $64.

We have added Monsanto (MON) to our Watch List as it makes another attempt to penetrate $48 while the momentum and money flow are fading.

We commented on Mylan Labs (MYL) last week and still suspect that the stock may need to retest the support level at $19 that was touched in July. The lower high during the most recent relief rally accentuates the weakness that was revealed in the long red candle in early August.

News Corporation (NWS) was mentioned in Monday's letter as it had pulled back to the intersection of the 20- and 50-day EMA's and we noted that it could find resumed buying interest. The breakout pattern could lay the foundations for further gains.

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
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com.  There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarante of future results.  Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.