The action yesterday in the S&P 500 (^SPC) was quite revealing and provides an interesting backdrop to the potentially market moving scenario which might unfold later today when the FOMC releases its statement. We have commented on the importance of the 1490 level on a closing basis for the index as this would register a new low for the corrective behavior that began in early June when bond yields surged.

In yesterday's session it appears that traders decided to test this level ahead of the announcement which is not expected to contain major surprises. The intraday low that was registered at 1484 brought out the support buyers and the index managed to reverse and close at 1506 for a gain of 0.9%. We now face the prospect that the announcement may have already been "discounted" in trading yesterday although the focus should be on the bond market for the real clues as to where the equity market may be headed.



The broker/dealer index (^XBD) made a lower low yesterday and still appears to be struggling to rise above pivotal chart levels.



The daily variabilty of the CBOE Volatility Index (^VIX) and the large intraday range that is being covered points to the growing nervousness which is becoming a feature of recent equity trading. Looking at the daily chart for the last few sessions we can see the long green and red candlesticks which stand in marked contrast to the far less variable bars from late last year. Also quite noticeable is the fact the ceiling for the latter part of 2006 has become the floor in 2007.



TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JUNE 28, 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.

We shall focus on two sectors today that show the current market dynamics. The exchange traded fund for the financial services sector, XLF, is showing evidence of distribution and may have momentum and money flow hurdles to contend with as it attempts to mount a rally at the 200-day EMA.



The exchange traded fund for the semiconductor sector, IGW, put in a strong performance with respect to price yesterday as it moved up 2.2%. What is also clear from the chart below that volume was very subdued and we now face the real test for the bulls that are hoping to tempt asset allocators to switch the funds that are clearly coming out of the financial services into the technology sector and specically the semiconductors.



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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