The Columbus Day holiday and the lack of any activity in the Treasury market gave rise to a quiet, low volume session for the equity indices. The S&P 500 cash index (^SPC) recorded a narrow range inside day formation and closed slightly below the multi-year high from last Thursday. As we noted in Monday's column traders in the bond market reacted unfavorably to last week's employment data and we will need to see what follow through there is today in the Treasury arena.

The Nasdaq Composite (^IXIC) continues to climb the upper volatility band and closed at 2311. The multi-year highest close for the index registered on April 19 lays another sixty points higher.

The ETF for the exchange rate of the Euro to the dollar, FXE, shows a rather notable breakout pattern as the Euro dropped below the triangular formation that had been forming since mid July. The gap down on Friday can be largely attributed to the action in the Treasury market, as the sharp increase in yields appears to have been a surprise to many currency traders.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 10, 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.

One of our preferred patterns is the recovery pattern that is close to having run its course. The chart for AVID suggests that the stock is entering an area of vulnerability. In particular the volume during the last several "recovery" sessions has been below average and dwarfed by the large gap down volume.

We mentioned Express Scripts (ESRX) as a candidate on the short side in Monday's column and the stock continued its plunge yesterday.

Caremark (CMX) has seen two days of high volume selling pressure and the preceding chart formation is a good example of the bear flag formation.

Western Digital (WDC) is at an interesting juncture. The recent descending channel following the long green candle that we have highlighted has retraced almost to the base of a possible flag pole. Action in the next few sessions could either confirm the pattern or set up the possibility of a flag failure.

The negative divergences on the WalMart chart are becoming more apparent.

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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