On May 15, the Nasdaq Composite Index (^IXIC), on the daily chart, violated the uptrend line through the lows that extend backwards to early March when the market recovered from the abrupt sub-prime inspired sell off. Last Thursday’s bout of weakness did not quite reach down to the lows of May 15, but seemed to us as an inconclusive retesting effort. We will be watching this week for a possible test of the 2520 area which marks the 50-day EMA as well as the level from which the late February correction began.

One interesting feature of the pattern for the Nasdaq Composite is brought out most clearly on the weekly chart below which shows how the weekly closing price places the index exactly in the vicinity of the 162% growth/retracement as measured from the weekly swing high in April 2006 and the swing low which arose in late July of 2006.

We had previously encountered a similar 162% extension on the S&P 500 chart but this time using the Feb 07/March 06 as the swing high and swing low. It is also worth pointing out that, despite moving above the historic highest close of 1527 during intraday trading last week, the S&P 500 has still failed to register a new all time closing record.



Yields on Treasury instruments moved up across the whole spectrum of maturities last week and in particular the yield on the thirty year bond closed above the five percent level in all of the last three sessions of the week. We would expect to see a retest of the 4.9 level on the ten year and the 5.25% on the long bond over the intermediate term.

The holiday shortened week may see a continuation of the indecisive nature of Friday’s low volume session for many sectors of the market. The markets have to digest the signs that the interest rate environment is becoming more challenging for equities and traders could go into a holding pattern as they wait for the release of the May employment report on Friday morning.



The weekly chart for the broker/dealer sector (^XBD) illustrates how the sector has really made no upward progress since the beginning of this year. The recovery from the late February/early March sell-off was swift but appears to be stalling at the levels that were seen in January. Last week’s long upper shadow to the candlestick shows that the 260 level is proving to be strong resistance for the sector.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY MAY 29, 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.

Apollo Group (APOL) has spent much of the last six weeks attempting to break above the $50 resistance level. The inside session last Wednesday has been followed by two range expanion sessions to the downside on above average volume.



The chart for Timberland (TBL) shows range constriction and the May 7 long green candlestick and the positive MFI characteristics could be pointing towards a break out upwards in coming sessions.



Recent price action on the chart for Schering Plough (SGP) has been at variance with the deterioration in the money flow. The preponderance of small body candlesticks with long upper shadows could be indicative of impending corrective action.



We have included the chart for Southern Company (SO), which is both a constituent of the Dow Jones Utilities and the S&P 500 because it illustrates a rather striking breakdown pattern following some negative chart formations. Price has retreated quickly back towards the 200-day EMA on very heavy volume in a pattern that suggests a selling climax may have already taken place.



3M Company (MMM) made some remarkable gains over the last month but the most recent chart formations and the negative MFI divergences could be pointing towards a short term topping process.



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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