The US equity market experienced a volatile session yesterday and despite efforts to recover some poise most indices continued to erode. Many charts reveal inverted hammer candlestick formations as the indices and many individual stocks spiked higher intraday but closed near to their lows for the day. Another theme from yesterday's trading was the presence of many charts showing a retreat back to the 200 day EMA (however many charts have broken below this key level over the last week). One such chart is for the Russell 2000 (^RUT) which had a notably weak session as it declined by two percent to close at 760 a level which coincides almost exactly with the 200-day EMA.

In overnight Asian trading Tuesday there was a respite in the selling and most indices recorded gains of more than one percent. The yen appears to have stabilized as this is being written and it seems likely that there could be some relief rally in today's US trading. The problems in the mortgage market however are the wild card and we will be proceeding with caution. Even though short covering can produce powerful rallies we would be wary of carrying long positions overnight.



The Nasdaq 100 index (^NDX) also came to rest yesterday at exactly the 200-day EMA level.



The broker/dealer sector (^XBD) continued to fall yesterday and in contrast to the previous two charts the index failed to find support at the 200 day EMA. As the chart makes clear two trendlines have been violated in the last week and there is still some distance to go before there is any obvious area of chart support.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY MARCH 6, 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.

We repeat our caution from yesterday that individual stock chart patterns are far less reliable when the market is behaving in a critical fashion. For nimble intraday traders there may be some opportunities on the long side if the overall market mounts a relief rally today. Analog Devices (ADI) should benefit from any bounce today.



Countrywide Financial (CFC) came under pressure yesterday on the notion that problems that have afflicted the sub-prime lenders could jump to some of the supposed lower risk mainstream mortgage players. If that concern is dismissed today (even if turns out longer term to have some validity) the stock could mount a quick rally.



Google (GOOG) came to rest at the 200 day EMA and some positive comments from brokers could see the stock rally quite abruptly if the overall market bounces today.



One other candidate for a potential bounce is Chindex International (CHDX)



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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