Daily Form December 23, 2008

CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC's EUROPEAN CLOSING BELL TODAY

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TUESDAY DECEMBER 23, 2008       08:14 ET

This will be my last commentary for 2008 which must rank in the annals as one of the most extraordinary years ever in the financial markets.

To conclude the year and to tie in with some charts that I intend to present on CNBC’s European Closing Bell this afternoon I shall focus on three long term monthly charts and explore the question of just how unusual recent price action has been for several key markets.

In two cases the charts go back to early 1987 and in the case of the third, the KBW Banking Index (^BKX), the period begins with the commencement of this index in 1993.

To begin, my favorite chart for 2008 is the 20 year perspective on the yield for the ten year Treasury Note (^TNX). On the far left hand side of the chart can be seen the yield moving above ten percent in 1987 which was a primary contributing factor to the October 87 Crash. The steady decline in yields within the context of a descending wedge pattern is really uncanny and shows how those seeking consistent and "safe" income from the capital markets have been increasingly challenged as the focus moved to capturing short term capital gains from more speculative investments.

The last candlestick on the right hand side is the most shocking of all and shows that we are in uncharted waters.

In order to underline the fact that all analysts are currently facing unusual challenges in making sense of these charts I tried several well known technical analysis indicators (e.g. MACD, Stochastics, TRIX, etc) but finally settled on the Relative Strength Index (RSI). As the chart reveals this indicator has reached below the 30 level on just a few occasions. Welles Wilder, who developed the index considered the 30 level to be an oversold level (or in the case of bonds since price moves inversely to yield this would need to be considered as an overbought level).

The current reading from the monthly application of the indicator is at 24 and this surpasses any previous low reading and suggests that we are either, entering a new regime where the risks of global deflation should cause us to suspend the notion that bonds could be overbought in any normal trading sense, or, that we are on the verge of a major sell-off in Treasuries.

I suspect that the accumulation of Treasuries is far from over and this presents the possibility that the applications of the RSI in relation to other indices and asset classes must also be subject to doubt.


The monthly chart for the KBW Banking Index (^BKX) has a slightly shorter history than the period covered in chart for the Ten Year note yield, but still provides another dimension to the notion that the current financial climate is unprecedented. The RSI value until recently had never dropped below the 30 level but over the last two years we are pursuing new lows just above 20. There is some indication that a double bottom may be setting up but I would hesitate about reading too much significance into that.

The fact that there is no precedent for this kind of persistent weakness in the banking sector, and a failure to rally on a supposed oversold condition if one uses the normal interpretation of RSI, suggests that one should suspend the notion that this is in any sense a "normal" trading environment.

I looked at several of the major US equity indices in relation to the framework that I have outlined for the two charts above and there is relatively little difference between the results obtained on the long term charts. The index which perhaps most vividly brings out a continuation of the notion that things are different this time is for the Dow Jones Industrials Average (DJIA). The reading on the RSI segment of the chart shows a value of 24 and this is considerably below the other basing period on the chart in 2002, which interestingly did conform to the Wilder notion that 30 was a good level to look for a recovery.

To summarize quickly the upshot of the material just presented, my view is that the financial economy has undergone a major transformation in the last two years, to put it rather pompously one could talk of a paradigm shift .

Many consequences flow from this momentous change and they should make one cautious about many matters but especially about assumptions relating to earnings forecasts for the entire financial sector and, in turn, the broader economy. If the business model for the banks and other financial intermediaries is "broken" then it will need to be replaced with another engine to power future economic growth.

It would be foolish to claim that all of the growth since the 2003 recovery was illusory and based on an over-leveraged banking system and over-optimized credit creation processes, but there is now a real question mark as to where the catalyst for future dynamism in the economy is going to come from.

In the meantime I wish all readers of this column the best compliments of the season and prosperity and good health in 2009.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY DECEMBER 23, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

TBL  Timberland Company  

In yesterday’s commentary I suggested that Timberland (TBL) appears ready to correct after recovering into an area of chart resistance.

An eight percent return could have been realized on the session.

Daily Form December 22, 2008

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MONDAY DECEMBER 22, 2008       06:56 ET

The Dow Jones Industrials (DJIA) was a relative under-performer in Friday’s trading and is in danger of losing contention with the upward slanting slope that has been steadily building since the November lows.

The 9000 level has clearly posed a major obstacle on the upside and during last week the bulls found it hard going to really follow through on the momentous Fed policy moves and even Friday’s rescue loan for the auto makers.

A drop below the 8500 level on a closing basis would raise the possibility that year end selling may get a little out of hand, but one also has to suspect that institutional inertia in the next few sessions could keep the index out of trouble.


London’s FTSE is almost two percent off in current trading on Monday morning and in accordance with comments about the DJIA there is mounting evidence that there is a clear overhead supply which is confining the efforts of the bulls to produce a customary Santa rally.

Sentimental is very fragile in the UK and the state of the public finances continues to produce negative surprises. The fact that the UK Treasury will have to engineer a strategy to sell more than 150 billion pounds of government debt in the new year is likely to further pressure sterling and pronouncements about the depth and length of the recession are getting gloomier as more economic data arrives.

For UK readers during this festive season, and especially so in the current woeful economy, this year more than most we should make a special effort for the kids as they could well be dealing with the legacy of the dismal public finances for years to come.

Last week’s surge in the euro and Swiss Franc was certainly overdone but I would suspect that there will be another move against the US dollar in the remaining sessions of the year. I would be a buyer of the inverse Dollar index fund, UDN, at or near to the level suggested on the chart below.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY DECEMBER 22, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

IYH  iShares Dow Jones US Healthcare  

IYH, the exchange traded fund for the Dow Jones US Healthcare sector, could make a little further progress towards $55 but the doji star from Friday’s trading suggests that the sector may be vulnerable to a corrective move after rallying back to resistance.



MCD  McDonald's Corporation  

McDonalds has struggled several times to penetrate the $64 level but there is an intriguing cup and handle pattern emerging which suggests that, along with a strong case on fundamental grounds, the technical condition is suggesting higher prices ahead.



JEC  Jacobs Engineering Group  

Jacobs Engineering (JEC) has a constructive pullback pattern and could be ready to move higher after retreating to probable support at the intersection of two moving averages.



JPM  JPMorgan Chase and Co.  

JP Morgan (JPM) is nestled at the tip of a triangular pattern which could portend a breakaway move which is more likely to be down than up.



TBL  Timberland Company  

Timberland (TBL) appears ready to correct after recovering into an area of chart resistance.



TSM  Taiwan Semiconductor Mfg. Co. Ltd. (ADR)  

I favor the long side for Taiwan Semiconductor (TSM) and would be targeting the 200 day EMA (green line on the chart) in the intermediate term.



TSRA  Tessera Technologies Inc  

Tessera (TSRA) has rallied back to an obvious (perhaps too obvious?) level where renewed selling could appear.

Daily Form December 17, 2008

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WEDNESDAY DECEMBER 17, 2008       06:28 ET

As I intimated in yesterday’s commentary there was a possibility that Chairman Bernanke would come through with some novel policy initiatives. As things turned out the markets got almost more than they could have hoped for. The decision to target rates at zero effectively was only part of the surprise - rather it was the implicit underwriting of mortgage backed securities and an explicit articulation of a commitment to substantial quantitative easing which created a lot of rejoicing in the fixed income markets.

The big casualty of the session of course was the US Dollar with both the Japanese Yen and the Euro continuing their breakout beyond where I was expecting, although to be fair on myself, I did qualify my comment yesterday by pointing out that an extraordinary move by the FOMC could trigger further dollar selling.

The euro is now back in the $1.40’s and perhaps has the renewed vigor to surprise even further on the upside, although some consolidation at current levels would not only be expected but also constructive.

I have profited well this year from the forex arena with short positions in sterling both against the dollar and also against the euro over several weeks, and then playing the EUR/USD recovery recently, so I shall not begrudge the fact that the last few cents of the euro rally have passed me by.


Traders in the S&P 500 (^SPX), especially in the futures markets, celebrated the eponymous move by the FOMC yesterday with a substantial rally. It did not quite bring the cash index to the 50 day EMA level but stopped at the intraday high from just over a week ago, on December 8th to be exact.

Let’s see if there is sufficient follow through to break this index decisively through the fifty day moving average and perhaps even take a run at the 1000 level before Santa gets on his sleigh.

The Dow Jones Industrials Index was not quite able to make it to 9000 but came very close. Reviewing the exchange traded proxies for the major US indices, including DIA for the Dow Jones, the volume was not as substantial as might have been expected from such an accommodative policy statement from the Fed.

Watching volume in coming sessions will allow a realistic appraisal of how much staying power and dynamism there is accompanying the improving sentiment.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 17, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

EWW  iShares MSCI Mexico Index  

The MSCI Mexico Index, as tracked by the sector fund EWW, has made a strong break above the 50 day EMA and upper volatility band on substantial volume and looks set to challenge the intraday high from October 10th.



FEZ  DJ Euro STOXX 50 ETF  

The exchange traded fund which is based on the EuroSTOXX 50 index, FEZ, shot up by more than seven percent yesterday although the money flow is not sending a confirmation for a move of this magnitude.



FXA  Currency Shares Australian Dollar  

Here are my comments from just over a week ago about the likelihood of a large gain in store for the Australian dollar

A more benign climate for equities, if it is sustained, could allow a slightly more adventurous approach for global capital flows. In such circumstances I would expect to see a rally in the Australian dollar, FXA.



GLD  streetTRACKS Gold Trust  

My recent recommendations regarding gold and the gold mining stocks have proven to be very profitable but, as the sector fund, GLD, reveals there is now a challenge for the precious metal at the descending trend-line through the highs.

If we can break above this potential resistance there could be new historic highs in store for the precious metal in coming weeks.



IYR  iShares Dow Jones US Real Estate  

With a more than 12% increase yesterday, I shall cast modesty aside and repeat the comments made here on Monday.

IYR, which tracks the Dow Jones Real Estate Index, is revealing some rather noticeable positive divergences.

Daily Form December 16, 2008

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TUESDAY DECEMBER 16, 2008       07:16 ET

The arrows marked on the chart below for the Dow Jones Industrials (^DJIA) are intended to highlight the manner in which the volatility bands are constricting.

In turn this brings into focus the range bound nature of trading since the recovery from the November 21st reversal.

Such range constriction could easily extend further but ultimately this kind of condition is usually a precursor to a decisive directional move. In the inimitable manner of the markets the first break out of this range compression may not necessarily be indicative of the longer term directional move, and it is possible we may see a "fake" move in today’s trading.

Two events should predominate in today’s trading. The first, which has largely been factored in already, is the decision by the FOMC. As always most attention will be on the accompanying statement and any novel policy hints from Mr. Bernanke.

The other announcement that has the capacity to surprise or disappoint will be the earnings report from Goldman Sachs. The rather detailed anticipation of this number suggests that some leaking of the highlights may have already taken place and that the number may not be as negative as some traders are expecting.

The key upside target on the Dow is at the 9000 level which also coincides with the 50 day EMA. A drop below 8000 could definitely be a harbinger of another wave downwards for US equities.


The daily chart for the KBW Banking Index (^BKX) reveals an intriguing and negative pattern which is suggesting that market participants are still viewing this sector as not yet through its major difficulties.

The major descending wedge pattern is clearly evident and the drop below the baseline of that again, following the late November rebound, is unsettling. Underlining this concern is the evidence that the uptrend line for the recovery pattern itself has been violated which could portend a retreat to the November 20th lows again.

Very strong resistance can be assured at the $45 level.

The thirty year US Treasury Bond closed yesterday’s session at exactly 3% yield after flirting intraday with yields below that level and close to historic lows. Traders are anticipating that the Federal Reserve will go on record with acknowledging its policy to purchase government debt at the long end of the yield spectrum and the FOMC statement today may well provide that formal declaration.

As discussed in yesterday’s column I exited my short position on the US Dollar Index. The chart for the positive stance on this index, UUP, reveals most graphically the possibility that recent selling of the US currency could have been somewhat overdone.

Any kind of shock announcement by the FOMC as part of the statement accompanying the rate decision this afternoon could conceivably trigger another bout of selling, but it is more likely that a consolidation phase could now unfold.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY DECEMBER 16, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

NEM  Newmont Mining Corporation  

In accordance with yesterday’s recommendation on the gold mining stocks, Newmont Mining (NEM) performed well and could have returned, at its best levels, about 7% on the session. The chart reveals a penetration of a key trend line through the highs but also suggests that the rally could encounter some resistance at the 200 day EMA (the green line on the chart).



IAH  Internet Architecture HOLDRS  

IAH, an exchange traded fund with the rather unusual title Internet Architecture Holders, but which essentially tracks numerous technology companies including major holdings in IBM, Cisco (CSCO) and Apple (AAPL), is displaying a bullish flag formation.



CHNR  China Natural Resources Inc.  

China Resources (CHNR) has most of the characteristics that one looks for in an ascending wedge pattern that could precede an upward breakout. Recent price action has been somewhat erratic so, as always, prudent position management would be the way to go.

Daily Form December 15, 2008

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MONDAY DECEMBER 15, 2008       06:18 ET

The resilience of US equities on Friday suggests that the market is seeing a glass that is half full rather than half empty.

One of the more intriguing patterns on the charts is the pronounced triangle or pennant formation for the Russell 2000 (^RUT).

The 38% retracement of the 2008 high and low is to be found around 520 which would require a concerted effort by the bulls, but, seasonality and the sense that no matter how bad the economic numbers are the market can take them in its stride, could see us make significant progress towards this intermediate term target.

My gut feeling, not necessarily something that can be adequately justified by the charts, is that in Q1, 2009 the economic news could deteriorate so much that the half empty glass perception will become harder to avoid.


The Euro has more or less achieved the target I have been proposing in this column over the last month. At this level I would suggest that the easy money has been made on this rally and that I would be looking to retire short positions in general on the major cross rates against the dollar.

When discussing the chart for the Gold & Silver Index (^XAU) on CNBC’s European Closing Bell last Friday I pointed to two revealing features for this sector. The first is that this is one of relatively few sectors to be trading decisively above its 50 day EMA and secondly that the break away from the bull flag earlier this month suggests that there is further to go on the upside. The mining stocks could also benefit from the fact that there is some distance for them to cover in order to revert towards a more typical ratio between the price of gold and the miners.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY DECEMBER 15, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

DIS  Walt Disney Company The  

I would favor the long side with Disney (DIS) as the flag formation meets all of the requirements.



LSTR  Landstar System Inc.  

The chart for Landstar (LSTR) reveals a well defined bullish flag formation.



TRID  Trident Microsystems Inc.  

Yet another bullish pullback pattern can be seen on the chart for Trident Microsystems (TRID) although this stock already moved up substantially in Friday’s trading and may have less on offer than the previous two bullish flag suggestions.



IYR  iShares Dow Jones US Real Estate  

IYR, which tracks the Dow Jones Real Estate Index, is revealing some rather noticeable positive divergences.



UDN  PowerShares DB US Dollar Index Bearish  

In the longer term I still favor lower values for the dollar index and this can be played via the inverse sector fund UDN. However given my prior analysis of the fact that the Euro has just achieved a major target and also from the evidence on the chart below, we can see signs of overhead resistance to further dollar weakness in the near term and I will be exiting this inverse fund later today and moving to the sidelines for the time being.

Daily Form December 10, 2008


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WEDNESDAY DECEMBER 10, 2008       06:45 ET

The S&P 500 (^SPX) chart reveals classical positive momentum divergences as the multi-year lows attained on November 20th and 21st were not confirmed by the orientation of the MACD indicator. In fact there is a notable upward slant to the momentum characteristics during the latter half of November. We have been witnessing during the recent recovery a common manifestation of the results of this kind of market dissonance - although the recent price action and money flow is not as overwhelmingly positive as the degree of divergences might have suggested.

I still maintain that intermediate term targets on the upside are most feasible at the 1000 level although there are layers of overhead supply in between.

The more that any rally continuation resembles a "V" shape the more likely we will see another sharp sell-off. The bullish case would be best served if the recovery slope is more gentle.


There is mounting evidence to suggest that the business model for financial services firms, in particular the broker/dealers and money center banks, has been undergoing a massive transformation in recent months and according to some commentators and analysts is now "broken".

Alan "Ace" Greenberg, formerly head of Bear Stearns, has been quoted in a news article as follows:

``There’s no more Wall Street,’' Greenberg, said in an interview on Bloomberg’s ``Money & Politics’' television program. ``That model just doesn’t work because it’s at the mercy of rumors.’'

Recent comments from PIMCO’s Bill Gross takes matters from a less emotionally charged perspective but has essentially reached a somewhat similar, if less dramatic, conclusion.

The changed circumstances for the financial sector pointed to by Bill Gross are more specific in that he claims that the days of high leverage, complex securitizations, light touch regulation from governments and lax credit rating standards are as he puts it "in our past and not in our future."

It is interesting to see that there is, from a technical analysis perspective of prospects for the sector, an echo in the chart patterns of XLF and the KBW Banking Index (^BKX) of the concerns expressed by both of these astute market commentators who are coming at the sector’s future more from a high level, business "fundamentals" perspective.

While there may be more upside to come for the overall market, as reflected in the significant positive divergences for the S&P 500 chart, there is evidence on the BKX chart that overhead resistance is more formidable and that the same resolution of underlying market dissonance should not be expected.



I drew attention in Monday’s column to the fact that the Hong Kong market is showing some of the most positive signs amongst global equity markets at present. The Hang Seng Index (^HSI) resumed its climb above its 50 day EMA in Asian trading on Wednesday with a rather impressive 5.6% gain.

Targets for the intermediate term are 17300 where there is chart resistance and perhaps longer term this index will be looking at the 18800 area which would be a 38% retracement of last year’s high around 32000 and this year’s low just below 11000.

Yesterday’s retreat in the US market failed to inject much drama during the session and the CBOE Volatility Index (VIX) registered a confined move. If the index can now sustain closes below the 50 day EMA this would reinforce the notion that risk aversion amongst asset allocators is diminishing.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 10, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

SMH  Semiconductor HLDRs Tr ML  

The exchange traded fund for some of the large semiconductor stocks, SMH, produced a substantial increase in volume on a more than 4% gain for a session in which the market as a whole declined.

A downward trendline through recent highs needs to be successfully challenged but one can contemplate a move up to the 50 day EMA around $19 for this fund.



GS  The Goldman Sachs Group Inc.  

In accordance with my comments about the absence of positive divergences amongst the financials and banking sector, Goldman Sachs (GS) is not displaying the kind of dissonance that is seen in several sectors and that needs to be worked off via a vigorous rally.



DRYS  Dryships  

The chart for Dryships (DRYS) reveals just the opposite dynamics to that seen for Goldman Sachs and shows just how dramatic a recovery in the shipping sector could be. This is not a stock for widows and oprhans or the faint hearted in general.



APOL  Apollo Group Inc.  

One of the more reliable patterns on the long side that my scanning technology has uncovered is expressed in the chart for Apollo (APOL) and I would favor a re-test of the recent highs.

Daily Form December 8, 2008

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Trade successfully without having to be right about the underlying market direction
MONDAY DECEMBER 8, 2008       06:29 ET

The reaction by equity trading desks to Friday’s very weak employment data should be construed as bullish in the short term for equities. A much weaker number than the consensus forecast was greeted initially by too much enthusiasm by the bears and when the selling started to run out of steam there was a sharp run to cover.

The tip off that the market was about to surprise could perhaps have been surmised in the extreme negative sentiment that has been developing as evidenced by an increasing number of articles and op-ed pieces in the mainstream press that are now talking about a global Depression.

Not that we may not be facing some very ugly developments ahead but bear market rallies can be powerfully unsettling for supercharged bears, and once they get started are likely to bring out the fear of getting left behind amongst those long only fund managers that are nursing the worst returns on equities in a generation.

The S&P 500 (^SPX) has a lot of work to get through the 920-ish area but could cast near term doubts aside and, as already suggested a couple of weeks ago, I would keep the 1000 level on the radar screen.


The dollar looks to be ripe for a corrective phase if the rally in equities continues.

The 38% retracement level on the Euro kicks in at $1.35 although it needs to break away from the pronounced triangular formation that has been evolving over several weeks.

If the markets are right in anticipating that the rapidly deteriorating jobs situation gives the US government the cover it needs to ramp up even more quantitative easing to the ailing US economy, I will be watching for further progress in the European currencies and, at least in the near term, a rest for the steadily mounting Japanese currency.

The Hang Seng Index (^HSI) gapped up substantially in Asian trading on Monday and pulled off a close above its 50 day EMA making it one of the first major global indices to do so.

Follow through towards the 17000 level should be expected before critical overhead supply may rain down on the parade.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY DECEMBER 8, 2008



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

FXA  Currency Shares Australian Dollar  

A more benign climate for equities, if it is sustained, could allow a slightly more adventurous approach for global capital flows. In such circumstances I would expect to see a rally in the Australian dollar, FXA.

The money flow characteristics and the constriction in the volatility bands suggest that this currency was substantially oversold by forex traders and that an unwinding of contra-carry trade positions is a distinct possibility.



UUP  PowerShares DB US Dollar Index Bullish  

I shall repeat my comments from last week regarding UUP, which represents a bullish viewpoint on the Dollar Index.

There is mounting evidence that the dollar reached a level of quite strong overhead resistance and the bearish flag pattern which was unfolding in last week’s trading appears to have presaged a correction.



XOM  Exxon Mobil Corporation  

Exxon Mobile (XOM) has a price compression pattern just below its 200 day EMA which could give way and lead to an upside surprise move.