The discordant behavior amongst the broad equity indices has become a feature of recent trading. The Nasdaq Composite (^IXIC) lost 1.5% yesterday as it diverged notably from the performance of the S&P 500 which declined by 0.3%. The chart below draws attention to the "breakout" which began with last Friday's action and which is now looking rather suspect.

The Russell 2000 (^RUT) declined by slightly less than the Nasdaq Composite but closed just below the 50 day EMA. The chart pattern is beginning to raise the possibility that the index lacks the momentum to carry it through the 800 level

A large part of the malaise with the Nasdaq and tech stocks can be laid firmly at the door of the semiconductor sector. SMH has moved from a position where it looked about to challenge the upper bound of its range last week to the bottom of the range in just five sessions.

The homebuilding sector is poised at the apex of a triangular pattern. The breakout pattern seems to be pointing toward further gains for the sector.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JANUARY 19, 2007

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.

General Electric (GE) has stalled in the vicinity of the $38 level and meanwhile there has been a noticeable decline in money flow. Yesterday's unusual Doji formation with very long lower tail on heavy volume may have left some position traders stranded.

The chart for Pactiv (PTV) reveals some negative divergences

The daily chart for Maxim (MXIM) highlights the difficulties in analyzing potential breakout patterns. There would have been a temptation to play last Friday's breakout but as can be seen for this stock, and indeed many of the semiconductor related stocks, the reversal this week has been acute.

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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