Release of the FOMC minutes provided an excuse for traders to expand the range and test the resolve of the bulls but perhaps more revealingly the test also provided a gauge to measure the enthusiasm of those favoring the short side to take the market down. Not for the first time there seems to be an absence of zealous bears.

The Russell 2000 (^RUT) retreated to almost tag the 20-day EMA where support was found and a modest 0.8% loss for the day was recorded. A significant feature on the chart for the index is the fact that the peak and base of the range this year coincides quite closely with the upper and lower volatility bands predicated on the 40-day SMA. The expansion of volatility over the last few weeks, which is reelected in the VIX chart, now seems to be establishing itself as a new characteristic for the equity indices and this is in marked contrast to the highly restrained volatility of the second half of 2006.



The chart for the investment banks and brokers (^XBD) has spent the last seven days straddling the 50 day EMA. The pattern suggests that a base is being built for a move back towards the previous highs.



The chart for the housing index (^HGX) continues to reveal a decidedly negative tone and the drop yesterday suggests that there will be a test of the November low.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY APRIL 12, 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.

Northrop Grumman (NOC) reveals a pattern that we have found to be quite predictive. An inside day following a multi-period high was followed yesterday by a range expansion session to the downside on increased volume. A retreat to the lower volatility band is now a distinct possibility.



The daily chart for YRCW reveals an upward wedge pattern that could be the precursor to higher prices.



Overstock (OSTK) also reveals a range expansion session on heavy volume following an inside day on Tuesday. The stock closed below both of the shorter term moving averages.



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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