Editor's Note:

Stocks are up three days in a row. The recent strength is encouraging but we could see another sell-off soon. The last couple of Fridays have seen the market drop sharply as investors bail ahead of the weekend. Now the rally seems to have stalled at resistance. What are the odds we'll see another decline in the second half of this week?

We want to trade carefully. If you have gains, consider taking some money off the table. A close over 1206 on the S&P500 would bolster my confidence in the market but the larger pattern (like the bear-flag pattern) could still be in play.

Semiconductor stocks continue to show relative strength. If you're looking for bullish candidates check out that sector although I'm starting to wonder if they need a rest soon. (chip stocks: ALTR, KLAC, LRCX, LLTC, XLNX, INTC, and TXN).

A few more stocks that might be setting up for a trade soon are: RHT, LIFE, FAST, CSCO and VMED

No new trades tonight.

- James