The weakness from Friday carried over into Monday's session and the S&P 500 reached below Friday's low and came close to testing the 1430 level as we anticipated in yesterday' column. The daily chart for the Russell 2000 (^RUT) also reached a lower intraday low than Friday but tempering the overall perspective on matters of the last two days, and somewhat reassuring for the bull is the fact that the small cap index remains some distance above its 20-day EMA.

The chart for the Nasdaq 100 (^NDX) is of more concern for traders as the index has closed below its 50-day EMA although an upward trend line through recent lows still appears to be intact.





The broker/dealer sector (^XBD) has reached a pivotal level which, if it is violated on the downside, would suggest that the January breakout to new historic highs could be in jeopardy in the intermediate term. Several stocks in the sector, BSC, LEH and MS (which we look at below) are also at inflection points.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY FEBRUARY 13, 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 week we mentioned that the volatility bands for OmniVision (OVTI) had become severely constricted and that there was evidence of accumulation. The stock gapped up and produced a seven percent gain on the day although, as the candlestick formation reveals, overhead resistance appeared exactly in conjunction with the 50-day EMA.



The daily chart for Adobe (ADBE) indicates that a basing pattern with positive divergences has been forming. Yesterday's striking combination of an inside day with a hammer candlestick and above average volume could presage further moves higher.



Morgan Stanley (MS) in the broker/dealer sector has come down to the 50-day EMA and an area where it, and perhaps the sector itself, will attempt to recover their previous poise.



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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