Following three narrow body candlesticks the equity indices encountered a new bout of weakness in yesterday's trading. Underlying troubles in parts of the financial sector caused some unsettled behavior in the market but the S&P 500 (^SPC) suffered a relatively minor loss of 0.6% and all of the trading took place within the range of the previous strong reversal session.

The data that pointed to further weakness in the housing market as well as a drop in consumer confidence is raising concerns that a potential slowdown in the consumer sector may be more acute than some of the optimists have been currently discounting.



The Russell 2000 (^RUT) unlike the S&P 500 index explored lower prices yesterday than in the previous session. The index came to rest at 802 which is still above the congestion zone between 770 and 800 and if further weakness pushes prices down at the open today we will be watching this index to see how much support is seen in the vicinity of the two short-term EMA's which are close to 795.



The index for the retail sector of the economy (^RLX) also showed a lower intraday low yesterday than from Monday’s reversal session. The close was below the 20- and 50-day EMA’s, but only just and at least as far as trading yesterday is concerned the pivotal 510 level appears to have been respected.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MARCH 28, 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.

In Monday's commentary we pointed to the chart for Terra Industries (TRA) and highlighted the negative divergences on both the MACD and MFI charts. Over the last two sessions the stock has fallen by more than nine percent.



After the close of trading yesterday Beazer Homes (BZH) dropped by approximately 17% after it was announced that the company was being investigated by the FBI for possible fraudulent activities in its mortgage lending practices.

The weekly chart indicates that the stock had returned to an area of chart support from late 2004 but this news will have undermined that support and suggests that a price near $25 could be seen today. This stock traded over $80 in early 2006



The chart for Lehman Brothers (LEH) shows that the renewed concerns in the sub-prime and Alt A mortgage sectors have seen a violation of the recent recovery trendline. The volume has however been modest over the last few sessions.



Assuming that the broad market is not preparing another major leg down, Mylan Laboratories (MYL) should continue higher following yesterday's upward momentum surge.



PMC Sierra (PMCS) peeked above recent range resistance and recorded a more than twice the average daily volume.



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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