Despite some negative divergences that are starting to appear amongst stocks that are favored by large institutional investors the equity indices continue to exhibit the kind of behavior that suggests that the bulls are in control. An alternative interpretation, as we have mentioned several times recently, is the absence of any systematic and persistent selling whenever the market seems to show signs of stalling.

The chart for the Russell 2000 (^RUT) illustrates the point well as the two slanting lines that we have inserted show that the uptrend is in effect in mutlitple time fragments.

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In yesterday's commentary we considered IGW, one of the exchange traded sector funds for the semiconductor stocks, which was poised for a possible breakout. Reviewing that chart from yesterday a price breakthrough did take place in yesterday's session but it was without convincing volume. The chart below for SMH, the other semiconductor ETF, shows a more decisive commitment of volume as the upper trading range has been penetrated. If the rally can be sustained we may see the trigger that propels the Nasdaq through its recent congestion pattern.



The yield on the ten year Treasury note closed in the middle of the bands that have confined all activity in 2007 - i.e. between 4.6% on the lower boundary and 5% on the upper boundary. All three moving averages are in the vicinity of 4.8% as well and the chart well illustrates the trading range that has characterized the action since the turn of the year.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY APRIL 25, 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 reviewing individual charts for the semiconductor stocks, Taiwan Semi, TSM, has may be the best looking chart for follow through on the upside as yesterday's long lower tail and heavy volume provides additional validation for the positive money flow characteristics.



We have no firm view on the price direction for Lexmark (LXK) but found the chart to be a good illustration of a rather scary reversal scenario following Monday's apparent break above all three EMA's.



USG found buying support as it retested its recent lows.



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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