After two days of subdued activity surrounding the holiday on Monday, volume expanded in a day of trading that started nervously after a fall in the Chinese market. Once the bears, that tried to exploit the temporary nervousness, realized that there was a lack of conviction on the downside there was a short covering rally that gained further upward momentum later in the day on the notion that the FOMC minutes did not contain any negative surprises. The late rally produced a new record high close for the S&P 500 (^SPC) as it broke above the previous highest close of 1527 from March 2000.

Regarding the future direction of Fed policy we suggest that the best way to interpret the current trading environment is that equity traders are far happier to see the glass as half full rather than half empty. We will be watching the reaction in the Treasury market to the employment report released tomorrow to see if a possible continuation pattern of the recent run up in yields could convert some to a less rosy view.



The Russell 2000 (^RUT) also registered a new historic highest close yesterday as it moved up by 0.7% which was slightly less than the gain seen in the S&P 500.



In Thursday’s trading the Nikkei 225 broke through an area of recent chart resistance and closed at levels not seen since just before the late February correction.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MAY 31, 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.

In Tuesday's commentary we expressed the view that Timberland (TBL) appeared to be ready for an upward breakout. In the last two sessions it has moved up by more than four percent.



Merck (MRK) appears vulnerable to more corrective behavior in the intermediate term.



Marsh McLennan (MMC) has a bullish pattern that looks poised to see higher prices. The stock could be headed back towards levels above $40 from which it dropped precipitously in October 2004.



Hasbro (HAS) may find it difficult to break above $33.



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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