The DJIA surged ahead more than one percent yesterday to another all time high pushing through 13,000 and adding almost another one hundred points before the index came to rest. But the index that we are watching most closely is the S&P 500 which closed at 1495.42 and is moving tantalizingly closer to its all time closing high of 1527.46 which was registered on March 24, 2000. It is also worth mentioning that the intraday high achieved on that same day was 1552.87. We have maintained for a long time that the equity market will approach a critical moment as this level is approached and we suspect that the absence of committed sellers of the S&P 500 index during recent weeks is perhaps ominous in that many are waiting to pull the trigger at the most extreme moment when the index spikes up towards a new all time high.

The chart below shows the almost parabolic ascent for the index since the key breakthrough session on April 3rd which is marked as point B on the chart and this followed the inside session the previous day marked at A.



From time to time we notice slight differences in the formations between the chart for the cash index and the chart for the exchange traded proxy. This happened in yesterday's trading for the Russell 2000 (^RUT). The cash index shows a green candlestick with a 0.7% gain and a new historic high being registered at 832.07. At the same time, as can be seen below from the chart for IWM, the ETF proxy for the index, the formation is of a more pronounced doji candlestick which is red, with a smaller gain and a close that was slightly below that of April 16th.

Just how much significance should we attach to such a divergence? Normally, not much perhaps. But the tendency of the last few sessions with historic closing high records being broken regularly in the DJIA and the S&P 500 moving up aggressively and the small cap index lagging slightly is a technical divergence worth watching.



We admit to being intrigued by the chart for the gold and silver index (^XAU). As the chart below shows the index performed closely in harmony with the S&P 500 period in the analysis above except that the A and B sessions marked for XAU preceded the S&P 500 by one day, and then following B there is the break above the short term trading range at 140. The subsequent rise of XAU was steep but the index sold off at the resistance level of the previous recent high of 148.

The index now faces a key test as it has retreated back to the 140 level and if the underlying dynamics are bullish, which we lean towards, then another large scale formation like the one that is in evidence from the end of February to the mid April time period should re-assert itself. We are not usually a big follower of the gold mining stocks and the precious metals but the index does take on additional interest for us given the juxtaposition of the strength in the European currencies and the critical levels that the S&P 500 and DJIA are facing. Our suspicion is that the overall market conditions could be close to bringing forth the macro traders that like to place their largest bets when markets are trading at extremes.

Keeping an eye open for cues from divergences such as the one noted between the IWM and ^RUT, the performance of the investment banks and even the XAU may be more productive than usual in the coming sessions.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY APRIL 26, 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.

Monday's recommendation on the long side for Apple (AAPL) was based on the technical patterns that are alluded to in the highlighted formations on the chart. Yesterday's earning report from the group should see the stock pushing through the $100 barrier today.



We would suggest an entry level just below $68 on the short side for Stryker.



We noted yesterday that in reviewing individual charts for the semiconductor stocks, Taiwan Semi, TSM, had may be the best looking chart for follow through on the upside as Tuesday's long lower tail and heavy volume provides additional validation for the positive money flow characteristics. The stock continued upwards yesterday and we still feel that there is further to go as long as the overall bullish market dynamics remain unchallenged.



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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