The comments yesterday from Fed Chairman Bernanke only served to underline the growing dissonance between the expectations held by some equity traders and institutional investors of a more accomodating policy on short rates and the continuing back up in long yields.

Despite the market's obvious resilience and the lack of a vigorous committment by those of a bearish persuasion to really test the downside aggressively there is some suggestion that there may be a subtle shift taking place in the underlying dynamics. Our daily scans are throwing up far more evidence of negative rather than positive divergences.

We continue to be intrigued by the formations that are evident on the daily chart for the Nasdaq Composite (^IXIC) and yesterday's doji in the context of the two island patterns from last week corroborates our cautionary stance at this point on the long side.



Further evidence of a transitionary market environment is provided by the utilities sector fund, XLU. The last few sessions have seen a dramatic increase in volume and there is clear evidence that asset allocators are switching away from this interest sensitive sector.



The third chart that we have also been alluding to in recent commentaries is for the banking sector (^BKX) and the close yesterday brought the index just below the 50-day EMA and also on the verge of violating a trendline through the lows during the recent sideways action.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JUNE 6, 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.

Fastenal (FAST) reveals some notable negative divergences.



EBAY, which closed below the 200-day EMA, could be headed towards a test of the March lows just below $29.



Cognizant Technology (CTSH) has begun a basing pattern but will encounter some resistance at the intersection of two moving averages that are just above yesterday's close.



General Mills (GIS) gapped down on twice the average daily volume and closed right on its 50-day EMA. We would see opportunities to get short in the vicinity of $60.



Google (GOOG) broke above its late November 2006 previous highest close on almost twice the average daily volume. It is usually prudent to be somewhat sceptical of breakout plays but there seems to be powerful momentum behind the recent moves.



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.

Disclaimer
The purpose of this article is to offer you the chance to review the trading methodology, risk reduction strategies and portfolio construction techniques described at tradewithform.com. There is no guarantee that the trading strategies advocated will be profitable. Moreover, there is a risk that following these strategies will lead to loss of capital. Past results are no guarantee of future results. Trading stocks and CFD's can yield large rewards, but also has large potential risks. Trading with leverage can be especially risky. You should be fully aware of the risks of trading in the capital markets. You are strongly advised not to trade with capital.