The bullish tone continued in yesterday's trading and there seem to be remarkably few remnants of the fear that entered the market three weeks ago. The S&P 500 (^SPC) moved ahead by 0.6% and in so doing crossed back above the 20-day EMA and now faces the next hurdle of the 50-day EMA which sits 4 points above yesterday's close. Volume was light yesterday as the market awaits the FOMC announcement and we could expect that some trading desks will want to test the bullish resolve today if there is any hawkish language in the FOMC statement regarding inflation threats.



The Russell 2000 (^RUT) index managed to transgress both of its short term moving averages yesterday and closed on its high for the day as it gained 0.8%. The chart below shows the bullish upward slope that occurred on the re-test of the February 27 low for this index - whereas several other indices did not reveal this higher low on the retest. We are willing to respect the evidence from the small cap stocks as to the overall condition of the equity market and right now it seems that the bullish underpinnings, while they were shaken severely, are still providing a strong support for prices.



The banking index (^BKX) has clawed its way back above the 200-day EMA and, in addition to the Russell 2000, this is one of the key charts that we will be monitoring for any suggestion that the recovery rally may have run its course.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MARCH 21, 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.

Pacific Sunwear (PSUN) moved up last Friday by more than eight percent on very heavy volume. There now appears to be a bull flag in formation which may have further to run but from which another buying surge is likely to materialize.



Another of our recent long recommendations Avid (AVID) made a strong surge yesterday after showing positive technical divergences for some time. Resistance is to be expected just above yesterday's close and also again at $37.



Perkin Elmer (PKI) exhibited very low volume yesterday and we shall be watching the stock today for a possible entry on the short side.



Chindex International (CHDX) had been showing signs for several sessions of a potential lift off from the 200-day EMA and yesterday it came with an almost seven percent advance.



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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