Many indices and individual charts show inside day patterns from yesterday's trading including the S&P 500 index (^SPC). Volume was subdued and the tone of the session suggests that traders and institutions are proceeding cautiously with ongoing concerns about the sub-prime mortgage sector competing with the positive and supporting bias of private equity financed acquisitions.

What intrigues us most about the current market environment is the unwillingness of many commentators to accept the possibility that the downturn in the housing market will not cause more financial distress for consumers and eventually the banking sector. There are a lot of cheermeisters that are trying to downplay the possible fall out and they seem to be getting louder in their dismissal of the worries. It may be that they are protesting too much.



The Nasdaq 100 index (^NDX) also registered an inside day and there is overhead resistance to overcome at 1760 and at the the 20- and 50-day EMA levels.



Most of the attention regarding the carry trade has been focused on the Japanese yen but also important is the performance of the higher yielding currencies that have become the beneficiaries of the yen denominated borrowing. Sterling based assets have benefited from the influx of the carry trade proceeds and the chart of the British pound is pointing to further evidence of the unwinding of some of the carry trades. The currency has under-performed on most of the cross rates recently and especially so on the GBP/JPY crosses. There is one easy way to play the currency for non forex specialists which is via the exchange traded currency fund FXB which admittedly tracks the cross with the dollar, but a further leg to the trade would be to involve the new fund FXY which tracks the cross between the yen and the US dollar.

Reviewing the chart for the pound against the dollar it is possible to interpret recent trading as a series of bearish flags and if the 1.91 level is violated we would have a fairly compelling case for claiming that the level reached in January just below the $2.00 level may have been a long term top for the currency.



The chart for the housing index (^HGX) shows a bearish break of the upward trendline through the lows and the drop below the 200 day EMA could suggest further pressure for the sector. Several homebuilders such as Pulte Homes (PHM) and Lennar (LEN) ran into significant selling yesterday and are approaching long term chart support levels which, if they are broken, could bring an even more negative complexion to the housing market.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY MARCH 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.

Dell (DELL) recorded a tiny inside Doji candlestick which is often found at significant turning points. The chart shows positive divergences on the MACD and MFI charts.



Even though we would be cautious on the long side at the moment the chart for Oracle (ORCL) continues to look as though a basing pattern is maturing.



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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