The S&P 500 cash index (^SPC) experienced a minor retreat in yesterday's trading dropping just below the 1350 level. Traders were spooked during the session by television pictures showing smoke rising from a Manhattan skyscraper following a plane crash but after it was realized that the incident had no terrorist implications there was a recovery later in the session that left most of the indices largely unmoved on the day.

The Russell 2000 (^RUT) lost 0.6% in yesterday's trading but managed a close just above the important 740 level. The action in the broad market indices over the last few sessions points to procrastination and hesitation but also apparent is the reticence of the small caps to seize any kind of leadership role.

The index for the housing sector (^HGX) recorded an inside day formation yesterday in the context of a constructive basing pattern that has been carved out in the last three months. The index is now on the threshold of a possible breakout if it can make it through the 200-day EMA.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY OCTOBER 12, 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.

Monsanto (MON) shows a good example of a breakdown pattern from a wedge pattern that has some similarities with the chart pattern for Ford (F) that we reviewed yesterday.

News that Bank of America (BAC) is offering free brokerage to some customers hit the shares of online brokers yesterday. Charles Schwab (SCHW) gapped down on heavy volume but the reaction may have been overdone. E Trade (ET) has a similar pattern. The action also had a very visible effect on the broker/dealer sector index (^BKX) which fell by more than three percent.

Varian Medical Systems (VAR) suffered a severe sell off on October 2nd and has been attempting to move back above the $52 level since then. The path of least resistance may be a further decline perhaps towards $48.

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.