The S&P 500 cash index (^SPC) has made very little progress over the last five sessions. As we have suggested previously, we believe that the market will succumb to the powerful attractor of the previous historic high from 2000 but as we approach that level we would expect to see increased volatility and nervousness.

The Nasdaq Composite (^IXIC) closed less than one percent from the multi-year high just above 2500 that was achieved on January 12. The daily ranges have been noticeably compressed recently and yesterday's range of less than fifteen points lead to the recording of an inside day.

The inside day pattern which has attracted the attention of many traders, and most notably, Larry Williams is often seen as an integral feature or marker for more elaborate formations that have proven to be reliably predictive. We cover inside days in some detail in Long/Short Market Dynamics.





The housing index (^HGX) gapped down yesterday and raises the specter of an island formation emerging as the recent breakout could be left stranded.



TRADE OPPORTUNITIES/SETUPS FOR FRIDAY FEBRUARY 9, 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.

Clear Channel (CCU) will face an important hurdle at the $37.00 level which was just 35 cents above yesterday's close.



Newmont Mining (NEM) pushed ahead on above average volume to face a potential chart hurdle at $46. We will keep it on our screens today for evidence that there might be enough momentum to sustain a further move forwards.



The volatility bands for OmniVision (OVTI) have constricted and there is evidence of accumulation.



Valero Energy (VLO) faces a critical test in the near future. It has a slightly unorthodox flag formation that has arisen not only in conjunction with the 200-day EMA but also at a pivotal level, that has provided both support and resistance, on the daily chart.



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.