Opportunistic index traders seized the occasion provided by Tuesday's new DJIA high to test the conviction behind those that had been fading the major market index breakouts. Despite some evidence that economic activity is slowing more acutely than current expectations, the half empty/half full dichotomy was definitely resolved in favor of the bulls yesterday. The S&P 500 put in a range expansion day on slightly above average, but not dramatic, volume and has now penetrated the steep buy channel that began with the July lows.

Our intuition about the current advance is that those position traders that have been betting against the continued well- being of the US consumer are now scrambling to cover. The bullish case rests critically on accepting and promoting the narrative that the slump in energy prices will counteract the other evidence that consumers will become more cautious in the wake of eroding real estate values. If the vertical ascent pattern gains momentum we could be setting up for an ugly correction later in the year as the market switches to the half empty narrative.

The Nasdaq Composite index (^IXIC) produced a surprisingly strong session which propelled the index forward more than two percent in what could be a concerted effort to catch up with the S&P 500 and DJIA. The Russell 2000 also managed a similar percentage increase and we will be watching this index closely in coming sessions to gauge the longevity of the current wave of positive sentiment.

Yields on the five year Treasury note dropped below 4.5% which shows the steepest yield curve inversion in the recent cycle. Treasury traders are dropping a major hint to the Federal Reserve that short rates need to come down sooner rather than later.

XLY, the exchange traded fund for the consumer discretionary sector, broke to an all time high in yesterday's trading. The steep ascent since early July which is visible on the weekly chart tracks and perhaps triggered the similar patterns on the major indices and underlines, in our view, the aggressive manner in which many traders are betting on the continued strength and resilience of the US economy.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY OCTOBER 5, 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.

Expeditors International (EXPD) has moved decisively above the levels that marked the early August gap down and appears to be following through on the breakout pattern that began with the long green candles of September 12 and 13.

First Data Corporation (FDC) benefited from the positive market dynamics yesterday but the chart pattern suggests that it might encounter firm resistance in the neighborhood of $24.