The chart for the Russell 2000 (^RUT) indicates the strong reversal that took place across the US equity market on Friday. Also striking about the long red candlestick followed by long green candlestick reversal pattern is that in both cases there was a trend day with the high/lows of the day corresponding to the open/closes respectively.

This kind of behavior suggests that enhanced intraday volatility may become a recurring feature of this week's trading with sudden shifts in sentiment as the interpretation of economic data moves back and forth between the half full/half empty dichotomy.



The chart pattern for the retail sector (^RLX) will be on our Watch List this week for evidence of drop below the wedge formation that has developed.

This coming week we expect to see a continuation of the ongoing debate which ratcheted up a level at the end of last week on the different interpretations of the now widely acknowledged view that the US economy is slowing noticeably. On the one hand there are those that find this fact supportive of a prolongation of the bull market on the grounds that it allows the Fed to be more accommodative. On the other hand there are those that feel that the slowdown in consumer spending as evidenced by troubling reports from the retail sector is going to undermine corporate profitability and thereby remove one of the main underpinnings of the recent spate of record high market closes.



The bond market, which has been confined within a very narrow range for most of the last four weeks, moved up Friday despite tame inflation data. The congestion in yields is a further manifestation of the fluctuating sentiments that accompanies each analysis of the economic data.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY MAY 14, 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 Intel (INTC) reveals back-to-back spinning top candlesticks with signs that momentum is waning and distribution has begun. The long upper tail to last Thursday's action could also be indicative of a double topping pattern in relation to the January high.



Penn National Gaming (PENN) closed just above the recent range in the context of an ascending wedge pattern. A breakout seems likely but we will be monitoring the pattern for confirming behavior. This may be one of the instances where it is more risky to play the breakout immediately than run the risk of getting left behind.



Our anticipation of the imminent upward move for 51job (JOBS) discussed on Friday was correct but it failed to present a profitable trade. The stock behaved in a contrary manner to the overall market on Thursday as it moved up 1.5% on twice the average volume following an inside day on Wednesday. But Friday's action underlines the importance of using the correct entry logic as buying the open after the strong upward gap on Friday morning would have left you stranded almost at the high of the day.



Compania de Minas Buenaventura (BVN) reveals some negative money flow and momentum divergences as well as consecutive spinning top formations at the top of the trading range.



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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