The S&P 500 recorded its third narrow range candlestick in a row yesterday and once again turned back from an intraday high in the vicinity of 1310. There were few developments yesterday to add to our weekend commentary, however, as we discuss below, for a day in which the indices moved very little the CBOE Volatility index moved a lot.

We were pleased to see that one of our long recommendations from yesterday, SGP, produced a 4.6% gain but unfortunately with its sizable opening gap we failed to get filled as it exceeded our entry target.

Since the beginning of February the Nasdaq 100 index has traded within a very well defined range as our daily chart below reveals. All of the trading during the last six weeks has been between 1640 and 1700 but the most recent price pattern suggests that we should expect a breakout attempt before this week is through.

The VIX chart shows that in the last three days when the S&P 500 has registered narrow trading sessions, the volatility index itself has been notably volatile. The three long green candlesticks are pointing to some underlying market dynamics that are not yet manifesting themselves in the price action on the S&P 500 index itself.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY MARCH 21, 2006

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.

Marvell Technology (MRVL) produced a Morning star candlestick formation in yesterday's trading and may be setting up to revisit its 50 day EMA.

WFR registered a pronounced Shooting star yesterday and the momentum and volume characteristics are suggesting that a correction could be imminent.

Alcan (AL) has unusually positive money flow.

Bausch and Lomb (BOL) retreated slightly from Friday's strong upward move and we would not be surprised to see a test of the 200 period EMA in coming sessions.

Omnivision (OVTI) has recorded a succession of lower highs since mid February and the long red candlestick from early March on heavy volume suggests that sellers may re-appear at current levels.

Cognizant Technology Solutions (CTSH) dipped below its 20 day EMA and the money flow has been diverging from the price action for some time.

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 guarante 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 you cannot afford to lose. This article is neither a solicitation nor an offer to buy or sell securities.

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.