There was an abrupt reversal in the US equity market yesterday and this is revealed on the charts in the form of long lower tails to most indices and individual stocks - suitably illustrated in the chart for the S&P 500 (^SPC) below. From the outset the index headed down and registered its low just below the 200-day EMA and then buyers emerged causing a rather severe short squeeze which propelled the index higher.

In yesterday's commentary we mentioned the fact that the close of the European markets around 16:30 GMT coincided with the strong wave of selling which triggered the first big drop on Tuesday, and once again in yesterday's trading the intraday lows on the US equity indices were recorded around this same time. The lack of follow through selling after the European markets closed produced a strong rebound in the index futures and this enabled the market to rally into the close. Volume on the SPY proxy was higher than Wednesday and this will encourage the bulls to try to prolong the rally. In the intermediate term it may be that another test of the 200-day EMA will be required.



The Russell 2000 (^RUT) has a similar pattern to the S&P 500 in respect of the successful test yesterday of the 200-day EMA. The intraday low corresponds uncannily with the green line on the chart which equates to the long-term EMA. In contrast to many of the other indices the intraday low was above that recorded on March 5th which may also be construed as a positive by the bulls.



The chart for the Nasdaq Composite (^IXIC) continues the theme that we have discussed of a successful intraday test of the 200-day EMA yesterday. This index faces a significant hurdle at the 2400 level as it tries to recover.



The oil services index (^OSX) has a positive looking chart formation and as we discuss below one way to benefit from any upward move in the sector is through the exchange traded fund, OIH.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MARCH 15, 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.

The ETF for the oil services sector, OIH, could be poised for an upward move after entering a wedge formation as it consolidates at the 140 level.



Nordstrom (JWN) was an underperformer in yesterday's recovery rally as it slid by 2.3% on heavy volume. The chart formation suggests that the stock looks vulnerable to further downward pressure perhaps to the 200-day EMA.



We repeat verbatim our recent comment on ORCL - Even though we would be cautious on the long side at the moment the chart for Oracle continues to look as though a basing pattern is maturing.



If the market bounces today as we would expect KLA Tencor (KLAC) could be ready to move up out of a mini-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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