The testimony of Fed governor Bernanke to the Joint Economic Committee created a real bout of market dissonance. The conflicting imperatives of remaining vigilant on inflation and accommodative to further fall out from problems in the housing sector has been one of the problems that many traders in the market prefer not to confront. The view that emerged following last week's FOMC statement appears to have been that the Fed would probably err on the side of easing rates to counter any consumer slowdown but as energy prices increase on geopolitical tensions and with Bernanke sounding more hawkish on inflation than the FOMC statement, the bears were able to prevail in yesterday's trading.

As can be seen the Nasdaq 100 (^NDX) has slipped below the two key EMA's that we track. It may be that the slight easing of tensions regarding the holding of British military personnel by Iran will provoke a feel better rally today (the European markets appear to be taking this view in Thursday morning trading) but the underlying dissonance for the US markets is not going to be easily resolved.



The banking index (^BKX) appears to be taking the threats to credit collateral values more seriously again and has retreated back to the 200-day EMA. Whether this represents another buying opportunity for institutional fund managers remains to be seen.



The index for the broker/dealer sector (^XBD) continues to trade in a technically methodical fashion. After returning to the 240 level which coincides with the 50-day EMA as well as the level at which one of the trendlines through the lows was violated, the sector has now begun what appears to be another test of the 200-day EMA. As always we would suggest a careful monitoring of these levels for clues as to the underlying market dynamics.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MARCH 29, 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.

Freddie Mac (FRE) closed at its lowest level since August 2006 yesterday and a re-test of the July 2006 low around $55 is becoming more probable.



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. Yesterday's close was the lowest since last September and the chart formation is beginning to look quite favorable on the short side. If the March 14th low of $68.07 is taken out there could be a re-test of the $60 level in the intermediate term.



There are some contradictory signals amongst the investment banks and for those that engage in pairs trading a long position in Morgan Stanley (MS) and a short position in LEH among others might be appealing.



Broadcom (BRCM) confirmed its break below the 200-day EMA yesterday with a continuation move on heavier volume.



Overstock.com (OSTK) broke down below important chart support levels in yesterday's trading.



Polycom (PLCM) reveals bearish range expansion on heavy volume following Tuesday's inside session at the top of the range. This is a generic setup pattern that can be tracked daily at the tradewithform website



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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