The chart for the Nasdaq Composite (^IXIC) shows a remarkable sideways pattern since mid November. Almost all of the activity is confined within the bands we have dawn which are at 2400 and 2500. Underlining the constrained nature of this channel is the fact that the current 50-day volatility or Bollinger band values are situated at exactly these same values. This tells us that there is a lot of churning taking place in the broad market and also that many trading desks are preoccupied with statistical arbitrage strategies between the larger cap indices.



The chart for the banking sector (^BKX) reveals a cup and handle formation.



One of the sectors that we like to monitor for signs of potential change in market direction is the consumer discretionary sector, which is well represented by the exchange traded fund, XLY. The recent volume and money flow values are pointing to some negative divergences.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY FEBRUARY 14, 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.

Yesterday's Doji formation for US Steel (X) needs to be monitored for confirmation that a slightly lower high was registered as the momentum is waning.



We profited from our bearish position in Corning (GLW) during December but respected the evidence of positive divergences at the turn of the year. The current formation looks like the second of two bull flags.



Archer Daniels Midland (ADM) has an interesting formation. There is a well defined bull flag and yesterday's move could be seen as a validation of the pattern. What concerns us is that moves out of the flag pattern tend to be decisive and on high volume and do not usually enable bystanders to hitch a ride the next day so we would keep the stock on the radar today for any signs of a reversal.



We repeat yesterday's comment on the chart for Children's Place (PLCE) which demonstrates the right characteristics in terms of volume and money flow for a bull flag formation.



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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