On Friday the index traders appear to have been in control of the proceedings. After the open the S&P 500 began to move back towards the intraday high that was achieved in Wednesday's session but just below that level of 1452.99 selling kicked in which gathered momentum into the mid afternoon. Some support came into the market as the index dropped below the 20-day EMA at 1435 and the index recovered somewhat into the close

This kind of reversal pattern needs to be distinguished from a more orthodox trend session and interestingly Friday's close was not in the lower ten percent of the daily range which is more characteristic of trend days. Looking at the chart pattern we suspect that 1430 is waiting to be tested next with a possible visit to the 50-day EMA at 1420, and depending on how these tests are resolved we will be better able to determine whether Friday's reversal, although technically interesting, has longer term consequences for the market.



The Nasdaq 100 (^NDX) registered a similar reversal pattern to the S&P 500 but in this case the index reversed almost exactly at the 1820 level. The index tagged the 50-day EMA but managed to close at a level that preserves the recent short term trend line through the intraday lows.



The daily chart for the broker/dealer sector (^XBD) provides another insight into the support/resistance characteristics that were a feature of Friday’s trading. The sell-off in the sector failed to penetrate the 248 level which marks an area of chart support and resistance as well as the 50-day EMA.



The Bombay Stock Exchange Sensex Index (^BSESN) suffered a more than 2.5% fall in Monday's trading. Apart from the significant decline we thought it worth featuring as the session illustrates a more typical trend day where the index opened on its high and closed very close to the low.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY FEBRUARY 12, 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.

Last Wednesday we drew attention to evidence of negative divergences for Wynn Resorts (WYNN) and after two days of gradual erosion the stock obliged nicely with a six percent fall on Friday.



On the long side we featured Take Two Interactive last week (TTWO) based on the evidence of accumulation as revealed in the money flow chart. There was a rather nasty whipsaw in Tuesday's trading which we have highlighted but as the long lower tail for that session suggests this would appear to be when some of the bulls pulled the trigger.



The chart for Children's Place (PLCE) demonstrates the right characteristics in terms of volume and money flow for a bull flag formation.



The Street tracks gold trust (GLD) shows an apparent confirmation of the breakout above $65. The occurrence of many false breakouts recently in many strategic allocation sectors however makes us cautious about playing breakouts in the current market environment.



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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