Yesterday equity traders decided to see a glass that was half empty rather than half full. It is also becoming harder to avoid acknowledging the dissonance that we have been noting regarding the hopes for a more accomodating policy from the Federal Reserve and at the same time the back up in long rates.

Selling was broadly based although the indices finished off their lows and the Nasdaq Composite managed to contain its losses to less than one percent.

The S&P 500 (^SPC) closed exactly at the 20-day EMA as did the DJIA.

One of the uglier charts is for the banking sector (^BKX) which we also featured in yesterday's commmentary where we discussed the probable break below an important intermediate trend line. This chart serves notice that the financial environment is becoming more challenging for the equity market.

Recent recommendations, which have been primarily on the short side (EXC, PTV, FAST, MRK and EBAY), delivered well for us in yesterday's trading but we would not become too confident on the short side unless important support lines are broken. In particular the 2525 level on the Nasdaq Composite will be a key level to monitor.



Also featured in yesterday's commentary was the ETF for the utilities sector, XLU, where the topping pattern and mini flag formation could have acted as an early warning indicator of the last two days of market weakness.



The CBOE Volatility Index (^VIX) had been largely confined within a well defined channel between 12 and 14 since early April but yesterday’s bout of selling has broken us above the range.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JUNE 7, 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.

Excelon (EXC), mentioned here twice during the last three weeks, completed a profitable short trade for us yesterday.



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.



InterActive Corp (IACI) declined in line with the market yesterday but on relatively modest volume and the pattern looks constructive on the long side.



One pattern that we pay close attention to is revealed on the chart for Parker-Hannifin (PH). Tuesday's small doji star formation was also an inside day and this was followed yesterday by a gap down and range expansion on heavy volume. We would expect to see follow through to the downside in coming sessions.



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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