The FOMC decision and announcement were broadly in line with what the markets had been expecting and the response was undramatic. The DJIA reached another record close (which far from being dramatic is starting to become a common occurrence) as did the Russell 2000. The chart for the S&P 500 (^SPC) indicates the small 0.3% gain that brought that index to just one percent from its all time closing high of 1527.

Visible on the chart are the retracement levels following the recent correction from late February to mid March and we shall simply register the observation that the 162% retracement level sits at 1513 which is just above yesterday's close. Measuring the retracement from the intraday swing low from March 14 would place the 162% retracement at 1520.



The semiconductor sector rallied strongly yesterday as is apparent from the chart below for the exchange traded sector fund, SMH. The bullish continuation for the sector following the breakout in late April arrived right on schedule for the bulls as the momentum and money flow for SMH were showing some evidence of deterioration.

Another notable feature from the sector analysis was an unusually large volume spike in the associated sector fund XLK which tracks many of the large tech issues.



We commented on the bullishness of some of the technology related stocks which provides additional underpinnings to the broad market but also evident amongst some of the sector funds we examine each day are signs that some sectors are beginning to wane a little with the suggestion that they may be overstretched. The chart for XLU which tracks the utility sector is one example of this condition.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MAY 10, 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 Express Scripts (ESRX) reveals a notable divergence on the money flow indicator.



A similar pattern to the one for ESRX can also be seen on the chart for Exelon (EXC)



Micron Technology (MU) peeked above the top of the range that has been in place for several weeks and the momentum should propel it further upwards from the ascending wedge formation.



One other candidate for a possible short term corrective episode is Schering Plough (SGP) which has had a remarkable ascent since its breakout in late March and could be preparing for a period of consolidation.



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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