After reaching above 5.3% in intraday trading on June 13, the yield on the ten year note has fallen back by more than twenty basis points. This has contributed to the broad rebound in stocks and raises the possibility that the concerns that were being expressed at the beginning of the month about a possible secular change taking place in bond yields was overblown.

We may need to revisit the 5% level (the 20-day EMA lies at 5.03%) before there is a further indication from actual Treasury sales as to the longer term prospects; much of the recent activity could have been derivatives based trading predicated on the over reaction that was seen earlier in the month.



The S&P 500 (^SPC) produced another narrow range formation that fitted entirely within the confines of last Friday's session. There could be a positive bias entering the market over the remainder of June as asset managers wish to present their end of quarter portfolios in the best possible light. Balanced against this is the possibility that Treasury traders will find a new excuse to push up yields and that asset allocation models will again be alerting to a need to prune equity holdings.



In reviewing the sectors, XLP, which represents the consumer staples stocks is showing relative weakness. The momentum and money flow characteristics are showing that the sector appears to be out of favor.



TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JUNE 20, 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.

Freddie Mac (FRE) registered a prominent hammer candlestick in which the intraday low tagged the 200-day EMA and also the June 8 low. Support is to be expected, but if a failure was to occur there is little obvious chart support until $60 is reached.



We cited InterActive Corp (IACI) recently and indicated that the pattern looked constructive on the long side. Yesterday's move up on above average volume has brought the stock to a potential hurdle at the 50-day EMA but the underlying dynamics still look positive.



Sometimes our recommendations can produce fairly immediate results (alas not always in the expected direction!) and at other times there is a more prolonged validation of the interpretation. At the end of May, we mentioned that Merck (MRK) appeared vulnerable to corrective behavior in the intermediate term. Continued attrition has brought the stock down to a pivotal level but looking at the larger frame pattern there is an apparent descending wedge formation that could call into question the upward gap move that took place in April.



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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