After an early positive start to yesterday's session and an apparent rebound for the benchmark S&P 500 index almost precisely at the 50-day EMA, the latter part of the session saw further deterioration in the financial sector which brought about a late reversal with most indices closing with relatively minor losses.

The Russell 2000 (^RUT), came down slightly harder than the S&P 500 which was the converse of Friday's action.

The daily chart reveals that the small cap index closed at the intersection of two potential support levels. Sub-prime concerns were a bigger worry yesterday than the level of long term interest rates and as we see below Bear Stearns (BSC) was one of the principal casualties in a weak investment banking sector. The ^XBD index closed below its 50-day EMA after suffering a 1.5% fall yesterday.



Intraday volatility is on the increase and yesterday's reversal caused the CBOE Volatility Index (^VIX) to move back towards levels last seen with the early March anxieties over the sub-prime sector.



One of the sectors that is acting poorly and has dropped below two different potential trendlines of support is the biotech sector. The exchange traded sector fund IBB seems to be picking up volume as it has sold off below its 200-day EMA. We may be headed back towards the March low.

In general this is a good trading environment for intraday traders but a more difficult trading environment for multi-period position traders. The already volatile conditions are enhanced by a plethora of data to be released this week as well as the FOMC meeting. We would suggest that being mainly on the sidelines, as far as end of day chart analysis is concerned, could be the prudent course.



TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JUNE 26, 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.

Bear Stearns (BSC) closed below the March low and is at a level not seen since last September.



Google (GOOG) registered a spinning top formation after posting a new high on Friday that invalidated the possible lower top formation. There are negative divergences on the MACD and MFI charts but shorting the stock is not for the faint hearted.



Vishay Intertechnology (VSH) has succumbed to the weakness that was evident from the dissonance between the higher prices into mid June but the deterioration in momentum and signs of distribution.



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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