The theme to each of the three index and sector charts that we show today is that each has a doji formation at the top of the respective price ranges.

The first is for the Nasdaq 100 index (^NDX) which moved up another 0.4% to a new multi-year high. In line with the discussion that we had during the webinar yesterday I am becoming rather cautious regarding the overall market at current levels. The presence of doji formations, and other small body/long tail candlestick patterns at the top of the current price range is often a sign that there is a stalling of momentum and a possible directional change.



The small body/long tail pattern was also seen in the chart for the exchange traded semiconductor fund, IGW, which we have featured before this week. The pattern revealed - which is essentially a hammer candlestick at a price peak rather than during a basing period - is sometimes referred to as a hanging man formation and can under some interpretations, when it occurs at the top of the recent price behavior be a suggestion that some traders have become "stranded" at a temporary peak.



The third pattern, seen on the chart below for XLE which tracks the energy sector is perhaps the most interesting in that there is a tiny doji candlestick that is also an inside day with a contraction in the volume. This chart also has evidence that recent momentum may have peaked and that the MFI is beginning to reveal a negative divergence.



TRADE OPPORTUNITIES/SETUPS FOR FRIDAY APRIL 27, 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.

The pullback pattern for EBAY suggests a possible short set up with a price trigger close to $35.



Fiserv (FISV) demonstrates a good example of a pattern that was discussed during yesterday's webinar. Following Wednesday's inside day there was an expansion of range to the downside with much increased volume. The stock also broke below the 50-day EMA. In the intermediate term we would expect that the bottom of the recent range could well be tested.



The chart for Getty Images (GYI) reveals the bullish side to the pattern that we just reviewed for FISV.



Another example of the bearish setup that was discussed for FISV is seen on the chart for OfficeMax (OMX). The stock also broke below the 50-day EMA as with FISV.



The chart for Schlumberger (SLB) suggests that a corrective move may be starting to develop.



A stock that we discussed earlier this week in conjunction with the bullish range expansion following an inside day is Taiwan Semi (TSM) which moved up further yesterday and which still looks to be headed towards a testing of the top of the range.



Our final chart today is for a stock that emerged from one of the screening patterns that was discussed in yesterday's webinar. Weyerhauser (WY) showed up yesterday in the screen which identifies stocks that have a positive divergence in the sense that while price has been registering in the lower quantile persistently, the closing bias has been showing a tendency recently to register in the upper quantile. The precise trading rules for this pattern are discussed in Long/Short Market Dynamics and the pattern is published daily at the website.

Also visible is the flag (or more accurately pennant formation) which taken together with the positive divergence just discussed would have alerted yesterday morning to a rather nice five percent move up.



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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