The Dow Jones Industrials closed out Friday at 13556, another all-time closing high, its 24th such record close this year. The strength in equities on Friday was aided by the slightly surprising increase in the Michigan survey of consumer sentiment. The uptick also gave a boost to retailers and consumer discretionary stocks and it would not be surprising to see the positive momentum continuing to provide support for further record closes this week. In particular the S&P 500 closed last week within five points of its all-time closing high achieved in March 2001 just above 1527.



The charts for both the Nasdaq 100 (^NDX) and the Russell 2000 (^RUT) are revealing a reticence that is not apparent on the charts for the S&P 500, the S&P Midcap and the DJIA. In some ways this is constructive for further bullish progress as it indicates that there are still skeptics on the sidelines that need to be scared into joining in the celebrations. The intermediate top for the strong rally, that has emerged since the sub-prime worries were set aside in early March, may have to wait until all of the indices are in vertical ascent patterns.



As anticipated in our comments here last weekend, the bond market broke out from the very narrow range that had been in place for several weeks. The yield on the 10-year Treasury completed the week at 4.80%, its highest since early February. It ended up 13 basis points for the week and seems set to challenge levels just above 4.9% that were touched in January. Apart from the doubts that the Fed is about to ease soon, another concern that was expressed amongst Treasury traders is the possibility that the Chinese may have slightly diminished appetites for US fixed income instruments as their currency continues to appreciate against the dollar.



The energy sector advanced broadly in the latter part of last week and is one factor that has the capacity to dampen some of the widespread bullish sentiment.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY MAY 21, 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.

Lehman Brothers (LEH) lost 3.9% last week and closed Friday’s session below its 50-week EMA. Regular readers will know that LEH is one of our barometer stocks and we wiil be keeping an eye on the mortgage derivatives markets in coming sessions for any negative developments



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



The chart for Bank of New York (BK) intrigues us as it reveals two back-to-back very heavy volume sessions following Wednesday's inside day pattern. The subsequent range expansion has been downwards and the close on Friday brought the stock below both the 20- and 50-day EMAs.



The chart for Global Santa Fe (GSF) shows a breakaway from a mini flag formation to an all time high. The action over the last few sessions had propelled the stock decisively through a potential triple top formation that originated in April 2006, and suggests that there should be even higher prices ahead.



The chart for Chubb (CB) reveals that the recent uptrend is in jeopardy and that momentum is waning as distribtion is under way.



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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