After Wednesday's strong catch up session from the Russell 2000 (^RUT) the index failed to make any further progress yesterday and registered a small doji candlestick. The S&P 500 closed within just 25 points of an all time closing high (although 1552 is the historic intraday high) and the DJIA chalked up another historic high as it closed up marginally higher to come to rest at 13241.

Attention will be focused on the employment data today and we will be primarily watching the small cap/large cap ratios as well as the financial stocks and the Treasury market.

We will not publish a commentary again until Tuesday, May 8 in observance of the bank holiday in the UK on Monday.



Yesterday on the webinar we discussed the usefulness of monitoring the broker/dealer sector (^XBD) for possible advance warnings of overall market inflection points. Another financial index that we follow closely (although not quite as closely as the XBD) is the banking index (^BKX). The pattern on the chart looks as though the index is building up towards a break above the pivotal chart level of 118.



We will be watching the Treasury market closely today for its reaction to the April report on employment data. The noticeable congestion pattern that has been developing with respect to the ten year Treasury note, where yields have been confined within a narrow channel between 4.6% and 4.7% for almost three weeks, could be ready for near term resolution.

The employment data could help to settle the question whether the uptrend in yields established during March will be restored, or whether the concerns that came to the fore with last Friday’s anemic GDP data will convert more followers to the idea that the Fed may be on the verge of easing.



TRADE OPPORTUNITIES/SETUPS FOR FRIDAY MAY 4, 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.

Earlier in the week we questioned our previous interpretation of a bearish flag formation for EBAY based on the striking hammer candlestick that we have highlighted on the chart. Yesterday's move up shows how one needs to be ready to abandon a mis-diagnosis of whether the pattern fits the template as soon as contravening evidence presents itself.



The chart for Qiao Xing (XING) shows a bearish break from a descending triangle that occurred in Monday's session and despite a reversal on Wednesday the downward momentum re-asserted itself again yesterday. In the intermediate term XING seems to be headed lower, perhaps towards $13.



The chart for Ashland (ASH) reveals some positive divergences on both the MACD and MFI charts.



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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