The main story for us from Friday's trading was the addition of another seven basis points to the yield on the ten year Treasury note (^TNX). The May employment report showed stronger job creation than the market had been expecting, and, despite some mixed signals as far as income growth, the judgment that is emerging is that fears about the declining fortunes of the consumer sector appear to have been exaggerated. This can also be seen as a factor in the strong recovery of the retailing sector which continued in Friday's trading.

While bond traders did not hesitate to push yields higher equity traders seemed more tentative about how to interpret the data.

This week we shall be watching closely as the 10-year note almost certainly will push above the five percent yield level and just how much further it moves beyond that could determine how much of a dampener this will be to the upward momentum in the equities market.

As this is being written, the Shanghai market has taken another dive (approximately 8.5%) and we shall be interested to see whether the US markets can take this in their stride or not.



The Nasdaq Composite (^IXIC) has registered two consecutive "island" formations and this can sometimes be the prelude to a reversal pattern.

The relentless M&A activity and global liquidity conditions are providing a strong bid for equities but the run up since early March has been quite extraordinary and the chances of a near term correction episode (underlined by some waning momentum indicators) are increasing.



One of the sectors that has yet to recover to the levels seen before the late February correction began is the banking sector as reflected in the ^BKX index.

The steepening of the yield curve and the overall lifting of long rates by fifty basis points since late February and early March is presenting a less favorable environment for the large money center banks.



TRADE OPPORTUNITIES/SETUPS FOR MONDAY JUNE 4, 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.

International Game Technology (IGT) could be poised to resume the upward bias that was evidenced by the long green candlestick on May 18 on very heavy volume. The subsequent pullback has been accompanied by below average volume.



Three weeks ago we commented that Excelon (EXC) appeared vulnerable and there have been bouts of selling as revealed on the chart. In the middle of last week there were two strong up days on above average volume but on Friday the stock reversed at the $78 level for the third time.



Timberland (TBL), performed well for us last week, and we would, not necessarily in the very near term, expect to see higher prices arising from the exended basing pattern and evidence of prolonged accumulation.



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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