Daily Form October 31, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY OCTOBER 31, 2008       03:50 ET

The S&P 500 (^SPC) despite a decent upward move of 2.6%, still registered an inside day as it failed to take out Wednesday’s intraday high which lies exactly on the 20 day EMA.

Today is the last day of what has been a very destructive month for those on the long side of most asset classes, and, as we move into November there could be some relief that seasonal factors may be more supportive for the equities as we approach Thanksgiving.

I have very little feel for the near term direction but during November I would not be surprised to see the S&P 500 reaching up towards the 1070 level.


The Bank of Japan followed the lead of the Federal Reserve and reduced its key short term rate from 0.5% to 0.3%. The result was a five percent sell off, most of which occurred in the afternoon session in Tokyo, and was attributed to the notion that many traders were disappointed that the cut was not more substantial.

When you are talking about only 30 basis points to zero this is a rather bizarre argument. Also notable on the chart is the inside day pattern which echoes that seen on several of the US indices in Thursday’s trading.

I noted yesterday in my comments on the yield of ten year Treasury notes that a key trendline through the highs in terms of yields has now been penetrated twice in recent weeks and that the current challenge could be more sustainable. Yields continued higher yesterday and a 4% target seems to be imminent.

Apropos the concerns I expressed yesterday about the magnitude of the global bail out efforts, the one thing that will keep in check the upward pressure on yields is the omnipresent possibility of a return to the safe haven play if equities come under renewed pressure on the downside.

The evolving pattern on the Amex Pharmaceuticals Index (^DRG) looks constructive and suggests that a continuing accumulation is taking place.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY OCTOBER 31, 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

AVP  Avon Products Inc.  

The monthly chart for Avon Products (AVP) is quite remarkable in showing that all of the upward progress that this stock has made since the lows of 2002 and 2003 has almost been erased in just the single month of October 2008.



BIDU  Baidu.com Inc [ADR]  

Baidu (BIDU) has rallied back in a flag like formation that could be ripe for a sudden setback as it encounters the 20 day EMA.



C  Citigroup Inc.  

Citigroup (C) is still struggling near multi-year lows and the chart pattern is suggesting that there is still considerable scepticism that this stock is a screaming buy at current levels.



TBT  Ultra Short Lehman 20 Plus ProShares  

The chart for the exchange traded fund TBT would be a vehicle for those that are bearish on the eventual direction of long term Treasuries. This is not a short term trading suggestion but rather one that could be held for the intermediate term.



PRU  Prudential Financial Inc  

Prudential (PRU) closed exactly at a critical level in regards to a descending wedge pattern. There was very substantial volume on the move in yesterday’s trading, and this raises concerns that there could be a new leg down in this major financial intermediary.



GS  The Goldman Sachs Group Inc.  

The chart for Goldman Sachs (GS) reinforces the view that I have expressed several times that for even the most blue chip names in the financial services there needs to be a fundamentally re-thinking of their long term value.

The rugged individualist world of investment banking is over and for Goldman there is the specter of much less dynamic growth potential of such firms for investors to worry about rather than the more recent concerns about their solvency.

Daily Form October 30, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY OCTOBER 30, 2008       06:13 ET

It is hard to keep track of the ever expanding extent of national government and supra-national bailouts. Apart from the obvious biggies like the TARP and other massive capital injections into the global banking system, here are just some that came to mind readily:

  • The UK government appears to stand ready to shovel credit the way of any small business owner that comes through one of the partly nationalized bank’s front door.

  • The IMF is hastily rescuing numerous economies on the global economic periphery which have dubious credit standings to put it mildly (not that a dodgy credit rating has been an issue in recent times in the developed world either)

  • The Russian government has put together a $6 billion rescue package for its most stressed billionaire oligarchs (some of whom could be down to their last few billions)

  • In the US many regional banks and auto companies that surely have reached their sell-by dates look likely to be in receipt of publicly contributed funds.

    The next priority must surely be to bail out the struggling developers of some fabulous extravaganzas in Las Vegas that are clearly of strategic national interest.

    At some point the ongoing bail out of private enterprise will bring about a bale out from government debt securities.

    In the equity markets the cheerleaders are suggesting we look across the valley to the future earnings growth that is likely to re-emerge with all of this stimulative government intervention.

    If one is consistent bond traders should be looking across that same valley and getting increasingly uncomfortable that additional supply, the ubiquity of cheap short term money and a re-kindled commodity sector cannot be good for bond prices.


    The DJIA could see a re-test of the 10,000 level while the bears sit on the sidelines waiting for re-entry opportunities.

    On the Nasdaq 100 (^NDX) the intraday high from October 14th and the 38% retracement of the June/Oct high low suggests that the 1500 area could be another area where the bears will lie in wait.

    Looking at the Nikkei’s performance in Thursday’s trading one could be forgiven for thinking that last week’s plunge to a 26 year low was just a momentary aberration (or more cynically a reminder of the notion that gained traction in the 1990’s that the Japanese were always clumsy sellers).

    As with the DJIA the 10,000 level would seem to be a feasible short term target.

    TRADE OPPORTUNITIES/SETUPS FOR THURSDAY OCTOBER 30, 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

    CHRW  C.H. Robinson Worldwide Inc  

    The suggestion in Tuesday’s column that CHRW could be ready to break out from an upwards wedge pattern which had been evolving could have allowed an attractive return over the last two sessions.



    MMM  3M Company  

    Also worth repeating is the suggestion given on Tuesday morning regarding 3M - (MMM) has managed to recover fairly steadily since October 10th but could face resistance from the 50 day EMA. A buy and reverse strategy at $65 may be worth consideration.

    Yesterday’s intraday high fell just 2 cents short of that target.



    UTH  Utilities HOLDRS  

    One of the sector funds for utilities stocks, UTH, is looking as though it is preparing for an upward move.



    UUP  PowerShares DB US Dollar Index Bullish  

    One further recent suggestion was to keep an eye on the exchange traded fund UUP, which represents a bull view on the US dollar index, for a possible topping action. The call was a little early but there could still be further rewards as it would not be surprising to see this fund retreat to the arrow indicated on the chart below.

  • Daily Form October 28, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    TUESDAY OCTOBER 28, 2008       06:47 ET

    The Russell 2000 (^RUT) continues to outperform on the downside as it dropped almost five percent yesterday. The waterfall formation was temporarily suspended while the triangular formation evolved during mid October but the downdraft has resumed.

    If this index is heading for a re-test of the last "recession" lows the 350 area was touched and retouched in 2002 and 2003.

    In the near term there is some technical evidence, reinforced by the action in the Asian and European markets on Tuesday, that the massively oversold condition of major indices could be ready to give way to a tradable rally.


    The S&P 500 sold off in the last hour of trading but the October 10th low is still intact.

    In Asian trading the Hang Seng index (^HSI) performed a substantial reversal after Monday’s 12.7% drop. The 14.3% increase in Tuesday’s session failed to cancel out all of the losses from the previous session which highlights one of those slightly counter intuitive notions regarding the arithmetic of recovery. It takes a larger percentage gain to completely reverse the erosion which occurs when a security is falling.

    The CBOE Volatility Index (^VIX) closed yesterday above 80 for the first time even though the intraday high was below that seen last Friday.

    TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 28, 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

    KR  The Kroger Co.  

    Kroger (KR) is at an inflection point where yesterday’s shooting star pattern highlights the strong overhead resistance from three moving averages in the neighborhood of $26.



    MMM  3M Company  

    3M (MMM) has managed to recover fairly steadily since October 10th but could face resistance from the 50 day EMA. A buy and reverse strategy at $65 may be worth consideration.



    CHRW  C.H. Robinson Worldwide Inc  

    CHRW could be ready to break out from an upwards wedge pattern which has been evolving and which showed signs of occurring yesterday during the earlier part of the trading session. However as with the previous two charts there could be stiff resistance from overhead moving averages so profit targets on the long side should be set realistically.

    Daily Form October 27, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    MONDAY OCTOBER 27, 2008       06:06 ET

    The Nikkei 225 continued its fall with another six percent drop in Asian trading on Monday which took it down to levels not seen since 1982. In some ways even more remarkable was the action in the Hang Seng which dropped by a rather breath taking 12.7% and has now fallen almost forty percent just during the month of October.

    When will this end? Will the markets have to be closed for some time to take a breather from the forced liquidation, as some including Nouriel Roubini are now suggesting?

    My own view is that we have hardly any precedents to guide us on where we are at present. Way too much complexity in the financial intermediation processes that we have created makes it virtually impossible to get the current crisis in a true perspective.

    Value players continue to point to great bargains and of course there are still appealing fundamental values in the assets and human enterprise that lies ahead – it is just that a lot of our current "wealth" has been and will continue to be hypothecated in instruments that are still being unwound

    How long will it take to recover? In my estimation a lot will depends on how deep are the anger and the feelings of distrust that ordinary folks have for the institutional framework that provided no checks and balances on the excesses.

    Boom and bust will always be part of economic life and it has been hubristic and dishonest to pretend otherwise.

    This could be the first collapse in which even the “Smart” money has got it wrong – but let’s hope that we will all be smarter when the de-leveraging is over and done with.




    Sterling continues to get buffeted in the FX markets and the UK economy has clearly gone into a tailspin. The target to keep in mind is the close on the FTSE of 3287 which was achieved on March 12, 2003

    The S&P 500 is returning to its quiet crash mode where there are some signs of bottom fishing which is arresting the decline but where the de-leveraging just grinds on.

    Sometimes a visual or graphic shows more clearly than any amount of textual analysis the market’s predicament. The chart below shows the relative performance of four major global indices with a base period set in October 2002. Two things are apparent. One is that the convergence back towards the base value has been accelerating and the second is the dramatic fall in the Hang Seng index during the last several months. So much for de-coupling.

    TRADE OPPORTUNITIES/SETUPS FOR MONDAY OCTOBER 27, 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

    GE  General Electric Company  

    General Electric (GE) has one of the more troubling charts amongst the major Dow components. The stock has been cut by more than half in six months, the downward trajectory is unrelenting and it would be hard to point to any technical clues which suggest that any kind of basing pattern is evident.



    MCD  McDonald's Corporation  

    MacDonald’s (MCD) has seen far less liquidation than GE but the broadening pattern on relatively light volume since the October 10th low, which attracted some clear buying interest, shows that there has been no real evidence of ongoing accumulation since.



    BAC  Bank of America Corporation  

    The chart for Bank of America (BAC) also illustrates that since the October 10th low which brought in some buyers the price drift into the triangular pattern is now in jeopardy and a retest of the mid July low now seems a virtual certainty.

    Daily Form October 24, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    FRIDAY OCTOBER 24, 2008       04:55 ET

    Trading in Asia on Friday has produced the kind of action that could be bringing us closer to some greater clarity on the depth of the global recession that looms ahead.

    The Nikkei 225 (^N225) lost almost ten percent and has now returned exactly to the 2003 lows that I have discussed here several times.

    Technical indications suggest that other global indices need to perform this test before there will be any commitment of the long only funds to equities. The hedge fund industry is in disarray and the ongoing de-leveraging and redemptions will continue to see a lot of selling under duress. Recent estimates are suggesting that perhaps a third of all such funds could be ready to go out of business.

    New insitutional capital needs to be convinced that much of this disruptive unwinding is out of the way before it wants to make long term commitments to value plays in equities.


    London’s FTSE fell almost five percent within the first ten minutes of trading on Friday morning. The long term chart suggests that a testing of the 2002/3 lows will now be a prerequisite before calling any kind of stability in this index.

    German’s DAX is continuing to move down and has now clearly dropped below the 62% retracement of the 2002/7 move. It is noticeable that on the monthly chart below there is no lower tail to the October 2008 candlestick - in other words this index has continued to register new lows on an almost daily basis

    With other global indices appearing to be shaping up for critical testing of the 2002/3 levels, the lows from October 2002, which were revisited in March 2003, on the Dow Jones Industrials (^DJIA) should prove to be too strong an "attractor" to be avoidable.

    TRADE OPPORTUNITIES/SETUPS FOR FRIDAY OCTOBER 24, 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

    XLK  SPDR Technology Sector  

    XLK, the SPDR Technology sector fund, could be setting up to revisit its lowest close on the monthly chart which was just above the $11 level in September 2002



    XLY  Consumer Discretionary SPDR  

    The chart for XLY is worth monitoring in the next few sessions for evidence as to whether the markets can stabilize in the vicinity of the lows seen during 2002.



    IYR  iShares Dow Jones US Real Estate  

    IYR, the sector fund that tracks the Dow Jones US Real Estate index was flatlining near the $30 level during the early part of this millenium and the almost forty percent drop seen in October so far suggests that we may be about to revisit these levels during the current recession.

    Daily Form October 23, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    THURSDAY OCTOBER 23, 2008       07:09 ET

    The triangular formation on the S&P 500 is morphing into more of a downward wedge pattern. The index also closed marginally below the recent multi year lowest close although the intraday low from October 10th has not been surpassed.

    I am reluctant to over interpret this pattern but the technical indications as well as the ongoing ancecdotal evidence that redemptions in the hedge fund world are requiring a lot of selling under duress suggest that buyers may not step up to the plate until they are convinced that the 2002/3 levels will hold.


    The Russell 2000 (^RUT) did not register a new closing low yesterday and for the moment, at least, there is evidence of higher lows and still no violation of the triangular congestion pattern.

    The yield on the ten year Treasury (TNX) has continued its retreat, leaving the recent break above the four percent yield as a stranded island of data points, and adds further plausibility to the notion that asset allocators are still seeking out safe havens and reluctant to be found holding any risky instruments in their portfolios.

    While the equity markets continue to attract much of the attention of the financial media some extraordinary developments are taking place in the forex world. Sterling is now at a new five year low against the dollar and in the 1.60’s and the euro has broken below the 1.30’s. During 2006 the euro currency was within a channel bounded by 1.20 and 1.32 approximately and it was the first evidence of the sub-prime issues, that were set to steal the limelight, in late February 2007 that began the trajectory up to the $1.60 level.

    I would not be looking to short the currency at current levels as the suspicion is that the easy money has been made and it is conceivable that the currency could trade in the 1.20’s for some time. Having said that when currencies such as the Hungarian forint and the Argentine peso are entering death spirals there could be a further manic flight to the supposed safety of the US dollar.

    TRADE OPPORTUNITIES/SETUPS FOR THURSDAY OCTOBER 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

    FXY  Currency Shares Japanese Yen  

    Also in the forex arena, the exchange traded fund FXY, which tracks the yen and increases as the US dollar declines againgst the Japanese currency, has surged over the last several sessions but now confronts possible resistance at the March high.



    C  Citigroup Inc.  

    Citigroup (C) is one of the stocks that I am most focused on at present and will be watching to see whether a new leg down would threaten the double bottoming hypothesis that appeared to be unfolding on the KBW Banking index.



    TTH  Telecom HOLDRS  

    TTH, a sector fund for telecom stocks, appears to have shown its hand as it slips below a congestion triangle on substantial volume.



    UUP  PowerShares DB US Dollar Index Bullish  

    UUP which is a bullish play on the dollar index registered what might be a short term island/doji top in yesterday’s session.

    Daily Form October 21, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    TUESDAY OCTOBER 21, 2008       06:46 ET

    The S&P 500 (SPX) along with many other indices produced a trend day yesterday but on much reduced volume as reflected in the exchange traded fund SPY. The triangular formation is being extended and until the directional breakout really presents itself I would remain wary of being swayed by either those pushing the credit market recovery story or the derivatives meltdown story.


    The KBW Banking Index (^BKX) barely budged in yesterday’s trading and the volume on the exchange traded fund XLF which represents a wider cross section of financial services was very noticeably subdued. Clearly this sector is in a holding pattern until some of the opacity regarding the rescue package, unwinding of derivatives etc becomes clearer.

    The yield on the ten year Treasury has now retreated to a level which, if transgressed, would question the notion that the recent break above 4% reflected a serious shift in sentiment regarding the attractiveness of US government debt.

    TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 21, 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

    SDY  SPDR S and P Dividend Yield ETF  

    SDY which is a sector fund that tracks the S&P High Yield Dividend Aristocrats index has, in common with so many funds, a very well formed triangular pattern and in this instance I would suggest that an upside breakout could be imminent.



    XBI  S and P Biotech ETF  

    XBI, which is a sector fund that tracks the S&P Biotechnology Select Industry index, would seem to face chart resistance at both the $57 level and an even stiffer hurdle above that around $58.50 where two long term moving averages have crossed.