The Nasdaq Composite (^IXIC) moved ahead 0.7% to close at 2513 and registered a new multi-year high yesterday. If this index has now managed to climb out of the 2400-2500 channel that we have noted several times there is scope for more upward progress as the overall market continues to show positive dynamics.

The larger cap stocks that are found in the Nasdaq 100 index (^NDX) still have to make a little further progress to join the broader index at a new multi-year high, and this serves to underline one of the most telling characteristics of the current market which is the ongoing outperformance by the smaller- and medium-cap stocks.



Having crossed the important 800 threshold in early February the Russell 2000 (^RUT) has shown continuing strength as it has gained more than three percent this month so far. Another all-time high was recorded at 826 and this achievement is the more remarkable in that many commentators were sceptical at the beginning of 2007 that small caps could maintain their upward momentum.



Over the last few sessions the yield on the ten year Treasury note has been threatening to be break loose from the pivotal 4.7% level which is where the 50- and 200-day EMA’s have converged. If the yields fail to stabilize at the current levels traders may want to retest the lower yield values at 4.4% that were touched in early December.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY FEBRUARY 21, 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.

Arch Coal (ACI) has a triangular (pennant) formation that also needs to be seen in the context of a narrowing of the volatility bands and the intersection of both the 20- and 50-day EMS's. The combination of factors suggests that a directional range expansion move is to be expected soon.



Chesapeake (CHK) has also entered a constricted range and all three moving averages will need to be breached in order for the bullish formation to yield a break out.



The chart for Disney (DIS) shows a bearish flag formation.



The chart for General Dynamics (GD) caught our attention from yesterday's trading. Volume was more than three times the daily average and the candlestick reveals a Doji formation with long upper and lower shadows. It would be worth monitoring the stock in coming sessions to see whether the $80 level will continue to present overhead resistance as it has done for several weeks.



Wal-Mart (WMT) broke above the $49 hurdle yesterday and may now be targeting the late October highs around $51.



The daily chart for KLA-Tencor (KLAC) shows a cup and handle 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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