The S&P 500 began the day quietly and then mounted a strong upward move in an attempt to take out overhead resistance. After failing to find follow through on the momentum the index reversed abruptly and closed more or less on its low for the day. After touching 1310.88 a new multi-year high the index fell back to 1297, slightly above the low recorded on March 15th.
One of the unfavorable developments in yesterday's trading was the renewed weakness in the Treasury market, which we discuss below.
In yesterday's commentary we mentioned that an attempted breakout from the well defined range that has confined the Nasdaq 100 was imminent. The impetus behind yesterday's challenge was clearly insufficient for the task at hand and we may need to wait for more benign signals from the Treasury market before a successful attempt is mounted.
The Nasdaq Composite (^IXIC) rallied right up to the 2006 high recorded on January 11th but along with the other indices the subsequent drop was quite steep and left a rather long upper tail and a Shooting star formation.
After several days of strength in the Treasury market with retreating bond yields, there was weakness across the board yesterday with all maturities moving back up. The Ten Year note closed just below 4.75%. As a result there were predictable declines in the housing and consumer areas and continued weakness in the utilities.
TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MARCH 22, 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.
The chart for Smurfit Stone Container (SSCC) looks conscructive to us on the long side and we would expect to see further buying interest to accompany the strong up move from last week.
Varian Medical Systems (VAR) looks vulnerable and the volume during the ascending channel has been subdued.
MetLife (MET) has unusually positive money flow and could be headed towards the top of its recent tange.
THQI would be attractive on the long side as the stock approaches its short term moving averages.
Xerox (XRX) has a bull flag formation and evidence of continuing accumulation.
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.