The broad equity indices put in a diverse performance in Friday's trading with small losses for the S&P 500 and Nasdaq but a small gain for the Russell 2000. The chart below shows the spinning top formation that sits astride the 20-day EMA for the S&P 500. We expect to see this week whether the paten which the index has shown for several months of recovering quickly after retreating to touch this moving average will be repeated.

A decisive close below the 50-day EMA at 1400 would be unnerving for the bulls. As we have indicated before the historic high at 1527 seems to be a likely target in the intermediate term, but a sideways pattern with corrective episodes could continue for some time.

The Russell 2000 (^RUT) has essentially moved sideways since early November and the majority of the closes have been between 780 and 800. What is becoming visible is a series of slightly higher intraday highs since the beginning of December.





The broker/dealer sector (^XBD) reached down to touch the recent breakout level at 248 and appears to have found support. The strong reversal candlestick from Thursday’s trading suggests that there could be further whipsaw moves ahead and we shall be monitoring the charts for some of the major constituents, GS, LEH and BSC for intraday trading opportunities in the coming sessions.



The Euro is at an important juncture and a decisive fall below the $1.29 level could unnerve a lot of big banks and traders that seemed to believe at the beginning of the year that the declining fortunes of the dollar was a one way bet.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY JANUARY 29, 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.

IBM continued to display the right characteristics for a bearish flag/pullback channel. The volume and money flow characteristics are supportive of the interpretation and we would be monitoring the $98 level today for a possible entry point.



Crown Castle International (CCI) has the converse pattern to the one we just examined for IBM but the pullback could see further retracement towards the $34 level before additional buying pressure materializes.



Deere (DE) has shown tenacity as it has approached the $100 threshold and the pattern suggests that a critical test will come soon. The recent pattern could be interpreted constructively as a bullish pullback but the potential exists for a failed flag pattern which is quite bearish.



51job (JOBS) would appear to face resistance at the 200-day EMA which lies just above possible chart resistance as well at $17.



Solectron (SLR) has a well defined upward trendline through the lows since mid-December and as reflected in the MFI chart the majority of the volume has been associated with green candlesticks.



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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