The reversal rally that emerged during Wednesday's trading was prolonged yesterday but without any impressive follow through. Prior to the open of trading yesterday the release of a hotter than expected PPI report raised the specter of renewed inflation worries and pushed out the likelihood of an imminent Fed easing. The indices opened with small losses and then spent a fairly erratic day with minor gains at the end. Some of the action may be attributable to options expiration activity and some must have been the result of traders attempting to gauge new expectations of future Fed policy in the light of the PPI report.

The Nasdaq Composite index (^IXIC) moved up 0.3% and the tentative quality to the session suggests that there is considerable apprehension about the near term direction. The 2400 level is a key threshold that the index will have to face if it can overcome the concerns that have been raised in the last two weeks.



The banking index (^BKX) ran into intraday resistance at the 200-day EMA. Reviewing the charts of individual banks such as WFC, BAC, C shows that each of them face hurdles at the 200-day EMA as well.



The chart for the exchange traded fund that represents the euro (^FXE) shows that the currency is poised at a critical breakout level. As this commentary is being written the overnight trading in Asia and Europe appears to be showing a probable break above the $1.33 level, with strength also in the yen and sterling. This may prove unsettling for the US equity market today and we will be watching closely to see how the currencies close against the dollar at the end of US trading today.



TRADE OPPORTUNITIES/SETUPS FOR FRIDAY MARCH 16, 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.

Yahoo (YHOO) appears to be in the process of forming a bearish flag formation.



The chart for Merrill Lynch (MER) highlights the precarious condition of the charts for many of the investment banks/brokers. Wednesday's long tailed candlestick suggest that a temporary base may have been made but the recovery efforts still look fragile. This is a pivotal sector and we would suggest caution in taking any firm view of the intermediate direction until the dust settles further.



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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