The equity indices moved down modestly in Friday's trading as there was a lack of follow through to Thursday's prolongation of the reversal that occurred in the middle of last week. The S&P 500 (^SPC) fell back 0.4%, the Russell 2000 (^RUT) which faces overhead resistance at 790 and 800 dropped by 0.6% and the Nasdaq 100 (^NDX) was the outperformer as its decline was limited to just 0.2%.

Some of the index charts are showing a formation that could be construed as a bear flag and this is perhaps most apparent in the chart below for the S&P Midcap Index (^MID). Our overall bias remains sceptical that the tumult which hit the markets during the last two weeks was just a temporary glitch. The economic data continues to paint a rather uncertain picture as far as short term interest rates are concerned. Inflation data is showing a more troublesome tendency than would be required for those who were hoping that a more accommodative Fed policy would come to the aid of the housing market.

For institutional fund managers we suspect that some are taking the approach that slipping out quietly from some bullish positions is better than waiting to do so when there is a rush for the exits. Many significant trend changes begin with small inflections at the margin and we may be witnessing just that at the moment.



In Friday's commentary we drew attention to the chart for the exchange traded fund that represents the euro (^FXE) which was poised at a critical breakout level just below the $1.33 level. The currency moved up in Friday's Asian and European trading but the US session was characterized by a series of descending highs until this trendline was cracked on the upside late in the session - although as the chart indicates the close was relatively weak.

If the currency retains its upward momentum we should be in for a challenge to the all time high from late 2004 on the cross rate which lies at $1.3668 per euro (0.7316 €/$). Overall the dollar appears vulnerable on other cross rates as well including the Australian dollar, although the British pound seems to be suffering some weakness of its own with respect to the euro.



The chart for the housing index (^HGX) reveals a downward staircase pattern punctuated by a series of bear flags.



In Monday's trading the Nikkei 225 index (^N225) pushed ahead by 1.5% and closed just above 17000 which coincides with a chart support/resistance level. Just above this close in the vicinity of 17250 the index will face another hurdle as it confronts the interesection of the 20- and 50-day EMA's. The strength in other Asian markets which appears to be carrying over to Europe in early Monday trading should set a positive tone to the US open later today.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY MARCH 19, 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.

Qiao Xing Universal Telephone Inc (XING) looks vulnerable with a nested bear flag formation in evidence.



Ann Taylor (ANN) moved up more than 8% on heavy volume but now faces a chart hurdle just above Friday's close.



BJ Services (BJS) has a bullish flag formation.



Express Scripts (ESRX) registered a doji formation with long shadows at the top of its recent trading range and there are some signs of negative MACD and MFI divergences.



Google (GOOG) has been struggling to move away from the 200-day EMA and the downward wedge pattern that is emerging is often a precursor to future weakness.



Integrated Device Technology (IDT) moved up from its recent plunge on three times the average daily volume and could be ready to mount more of a recovery effort - but it would be a very short term trade on the long side at most for us.



Perkin Elmer (PKI) appears to be carving out a bear flag pattern.



We recently cited Pacific Sunwear (PSUN) as attractive on the long side and the stock moved up by more than eight percent on very heavy volume. It appears to be headed for a challenge of the previous early 2007 high just above $21.



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

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarante of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.