As we move towards the holiday hiatus period with subdued volume, we would pay attention to various support levels for the indices to gauge whether the mildly positive drift which is to be expected could be in jeopardy. On the Russell 2000 (^RUT) chart we have highlighted the 770 level and as long as we do not decisively breach that level a bullish continuation pattern is the most likely scenario for the rest of the year.

This is our last commentary for 2006 and we would like to extend to all of our readers and subscribers the very best wishes for the holidays and for prosperous trading in 2007.

The Nasdaq 100 index (^NDX) is positioned at a fairly critical juncture and as we noted above if there was a decisive violation of the 1760 level this would put into question the presumption that the remainder of the year should show a mildly bullish continuation pattern.

We have included the chart for the broker/dealer sector (^XBD) which has carved out another well formed triangular pattern. This formation is a precursor to range expansion and directional breakout, and if the less probable of the two directional initiatives -a downside breakout was to arise - this could be quite unsettling for the bulls.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY DECEMBER 21, 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.

Principal Financial (PFG) looks over extended and the momentum chart is showing some negative divergences. We would be inclined to see any move above $59 as providing a favorable reward/risk opportunity on the short side.

As the daily chart for Qualcomm (QCOM) reveals there has been a clustering of long upper tails during recent action and the closing bias (i.e. where the closing price sits in regard to the daily range) has been diverging negatively with respect to recent price behavior.

We have isolated several instance of the descending triangle/wedge setup recently and Yahoo (YHOO) provides yet another example of the pattern. A more opportune entry point for a short trade may present itself in coming sessions.

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.