The Russell 2000 cash index (^RUT), along with all of the major indices sold off on the open yesterday and as the chart reveals the long lower tail to the candlestick pattern reached down below the 20-day EMA. As we have commented so many times recently there seems to be a shortage of bearish traders that are willing and able to mount the pressure for a sustained assault to the downside and the indices soon showed signs of wanting to rebound. The S&P 500 and the Russell 2000 ended the day with a marginal loss. However the session did provide an indication of the capacity for abrupt range expansion and we may see that tendency expressed again today in the context of the FOMC announcement.



Attention today will fall on the Treasury market as the FOMC makes its statement. The yield on the 10-year note has been confined within a range of just ten basis points for the last fifteen trading sessions. The current yield of 4.63% also sits in the middle of the longer term range that has been in place for the year so far. In fact the range between 4.4% and 4.9% extends back to the period in early September after the markets had digested the enhanced inflationary scares that were pre-occupying the money markets a year ago. While the 10-year yield remains below the 4.85% trigger level, we suggest that the equity markets on balance have a supportive monetary environment.



The sector index (^RLX) covers the retailing stocks some of which have been giving signs of losing momentum and distribution. The chart formation on the sector index needs to be monitored over the next few sessions for signs of a potential break down. The close yesterday was marginally below the 50-day EMA but the intraday low remained above that of May 1 and the pattern is still inconclusive.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MAY 9, 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 chart for Monsanto (MON) is displaying some signs of waning momentum and distribution. Yesterday's down facing range expansion and increased volume comes after Monday's tiny inside session.



After its retreat to the 50-day EMA at the end of April JB Hunt (JBHT) has moved up steeply in a wedge formation and could be set to break above the $29 level which has confined it for more than one month.



In yesterday's column, we cited the basing pattern and positive money flow divergences for XMSR and today's chart for SIRI echoes the pattern.



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.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.