The S&P 500 (^SPC) began the fourth quarter with a modest retreat as it pulled back 0.3% to close at 1331. One of the notable features of trading in individual stocks yesterday was some large downward moves on light volume which may have resulted from the transition into the new quarter and the abandonment of some positions that were added to portfolios with little conviction in the last few days of September.

The Nasdaq 100 (^NDX) was the principal casualty in yesterday's trading as it dropped 1.3%. Some of the same reasoning may apply as some big name high tech stocks added for portfolio cosmetics were discarded following the end of the third quarter. The 1620 level should provide some support but with imminent earnings announcements and employment data due at the end of the week it would be prudent to remain flexible in one's assumptions about the near term direction.

The i-Shares sector fund IGV which represents the software sector showed a rather notable drop on substantial volume yesterday.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 3, 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) recorded a Doji candlestick yesterday after meeting resistance again at $31. The chart pattern shows a significant retracement from the late July plunge but there is evidence that the recovery may be stalling.

Tellabs (TLAB) produced a potential breakout pattern last week on heavy volume and it would be worth monitoring the stock for further signs that the breakout behavior may be ready to resume.

Varian Medical Systems (VAR) fell by more than five percent on four times the average volume. The chart reveals that the stock had been enduring distribution for some time and even though the 200-day EMA provided a bounce yesterday we suspect that there may be further downside ahead.

Walgreen (WAG) featured here recently as a contender on the short side is struggling to find a level at which a relief rally can be mounted.

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.