It would appear from yesterday's adverse reaction to the FOMC announcement that the markets had built up overly optimistic expectations that the hikes in short-term rates were almost through. The indices all retreated but with notably different degrees with the DJIA suffering the most and the Nasdaq and Russell 2000 experiencing smaller declines.

The S&P 500 index declined by 0.6% and closed at 1293 which was just below the 20 day exponential moving average. The drop appears to have resolved the short term triangular pattern we have highlighted on the chart but we will see what the follow through is today before inferring too much about the near term direction.

The Treasury market reacted negatively to the FOMC anouncement and there was a noticeably more severe reaction by the long dated securities. The yield on the Ten Year note has moved back to the 4.8% level and could now potentially be headed towards the 5% level. Interestingly the yield on the thirty year bond moved the most and finished at 4.8% which was a new 2006 high and approaching the previous high yields from last fall.

The banking sector was another casualty in yesterdayââ,¬â"¢s trading and the exchange traded sector fund for the financial sector, XLF, closed below its 20 day EMA in what has been a steady decline since the breakout from mid March.

The Dow Jones Utilities index also continued its pattern of weakness and broke down below its 200 day EMA and closed at a new 2006 low of 393. The pattern that emerges from yesterday's market action suggests that traders are growing more pessimistic that short term rates have been ratched up enough and are reaching the conclusion that the underlying economy is strong enough to keep the Fed erring on the side of caution. The low unemployment rate and capacity utilization concerns that this poses will almost certainly ensure that there is ongoing vigilance about the dangers of inflation and this will continue to unsettle bond traders.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MARCH 29, 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.

Amazon (AMZN) appears to have reached a level where it could mount a meaningful rally.

Fording (FDG) would present an attractive reward/risk opportunity on the short side as it approaches the circled area on the chart.

Four Seasons (FS) has a constructive looking base and the momentum and money flow appear to be turning favorable.

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.

Disclaimer
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