Daily Form November 26, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY NOVEMBER 26, 2008       06:45 ET

It was an erratic ride for US indices yesterday with the S&P 500 (^SPX) providing almost as many thrills as the fairground. At the end of the day the candlestick registered on the cash index was a green spinning top whereas the formation on the exchange traded proxy SPY was a red hanging man. In the case of the more bearish signal - the hanging man - this appeared exactly at a chart line of resistance and almost touching the 20 day EMA for SPY.

Quantitative easing is the new terminology that is fast gaining favor in Washington and expressed in more prosaic terms it means that the printing presses are working overtime in a desperate attempt to reflate the ailing US economy.

Will policy makers exhibit the necessary good judgment to know when it is time to put the brakes on for this massive injection of liquidity?

The track record for the Fed on previous judgments about when it was appropriate to move away from overly lax monetary policy is not encouraging.

I wish all North American readers a very pleasant Thanksgiving holiday and I shall return on Monday December 1st.


As commented yesterday the US Dollar Index is showing signs that a correction is beginning. As one reader pointed out to me there is an ETF that allows one to take a bearish view on the index, UDN, (presumably U (DOWN) or one can simply short the other vehicle UUP (U (UP). That’s committed to memory now.

In simple round numbers if we take $1.60 as the swing high on the Euro and $1.20 as the low then the 38% retracement level comes out exactly to $1.35 which provides another round number as a probable target for the intermediate term.

Not only are the US, UK and much of Europe now joining the reflation party but the Chinese government brought down its key interest rate substantially during trading in Asia on Wednesday. It provided an impetus to Hong Kong stocks which ended with a decent rally.

The pattern on the Hang Seng Index (^HSI) seen below could possibly be construed as a megaphone bottom by some technical analysts although I cannot confess to having studied the pattern too carefully.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 26, 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

CMF  iShares S and P California Municipal Bond  

I drew attention in Monday’s column to CMF, which is an exchange traded fund that allows one to express a view on the strength or otherwise of the municipal bonds of the state of California.

Last Friday’s session saw a range expansion and a drop below key moving averages which I suggested looked bearish and yesterday saw a rather abrupt drop for this fund.



XOP  SPDR Oil and Gas Exploration  

There are positive OBV divergences on the chart for the sector fund XOP which reflects prices for several energy exploration companies. There is no need to get anxious about this pattern getting away too quickly from here, but the pattern suggests that a basing pattern appears to be under way.



IXC  iShares S and P Global Energy  

Not surprisingly many energy sector funds are mirroring the chart patterns to be seen for equities. IXC which tracks the S&P Global Energy index is looking poised to break above a key downward trend-line but it will almost certainly be taking its leadership from signs of continuing cheerfulness in the equity markets.

Daily Form November 25, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY NOVEMBER 25, 2008       06:54 ET

Yesterday was one of the easier days to take some decent day-trading profit from the market on the long side. The session started well and, apart from some bouncy castle moments towards the close, there were plenty of stocks that could have delivered double digit returns.

The S&P 500 (^SPC) managed to close just above the 850 level and should have some further upside potential, although as I have indicated on the chart there will be more liquidations and de-leveraging at the obvious lines of resistance.


I shall be watching the US dollar closely in coming sessions and the most useful indicator, which can be traded, is the ETF that represents a bullish view on the Dollar Index, i.e. UUP.

Coordinated inter-market strategies are starting to reveal themselves again as risk aversion appears to have diminished somewhat. The Citigroup deal has undoubtedly provided another dimension to the safety net under the banking sector and with this new layer of public sector underwriting of the default risk, notwithstanding the distress still being felt by many hedge funds, we should expect to see a slightly more benign environment for renewed asset class speculation.

The way that the matrix of asset speculation may unfold in terms of inter-market strategies is laid out in the discussion regarding gold.

In my opinion this will not be an enduring phenomenon until the market truly does believe that the worst of the recession has been "discounted". But during the plateau periods when more cheerful sentiment prevails this inter-market asset play will need to be reckoned with.

The Gold Index (^GOX) made it exactly to the 50 day EMA as discussed here yesterday. Attention will now focus on the dollar and the price of the precious metal.

Longer term I suspect that there could be a sense in which recovery in US equities will tend to find itself snookered by the following inter-market play:

Less Risk Aversion -> Higher US Equities Prices -> Lower Long term Treasury prices -> Lower Appetite for US dollars -> Higher Gold, Oil and other hard asset prices.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 25, 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

HYG  iShares High Yield Corporate Bond  

One other key indicator to monitor in terms of the market’s appetite for risk and the extent to which the recession has been fully discounted is provided by HYG, an ETF which tracks the high yield corporate bond market.

If the index which the sector fund tracks can break above the point indicated by the arrow on the chart this would suggest that the Armageddon merchants may be changing their view.



IYR  iShares Dow Jones US Real Estate  

IYR, which tracks the Dow Jones Real Estate Index, saw three times its average daily volume yesterday as it surged ahead by almost 15%.

Perhaps just a dead cat bounce but another move to at least $36 seems imminent.



XLF  Financial Select Sector SPDR  

The bounce for the financial sector fund, XLF, was substantial in price terms even if the volume was not overwhelming. The $12.50 level looks like a target for the coming sessions.

Daily Form November 24, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY NOVEMBER 24, 2008       06:46 ET

A continuation of Friday’s rally is to be expected in the early going in Monday’s US session. European stocks are rallying on the rescue of Citigroup (C) and perhaps as well as the mini-budget statement due later today from the UK Chancellor.

On the daily chart for the S&P 500 cash index there are two hurdles to overcome - one which I would expect to be challenged today which is the 825 area which had until last week marked critical intraday lows, and then higher targets which will run into the descending line which forms part of the downward wedge pattern. This line is tracking the 50 day EMA and has rather a steep slope so projecting it further becomes a matter of factoring in how long it takes, assuming there is a meaningful rally, before the resistance level is met.

It is not inconceivable that we could pierce this line with some more upbeat sentiment in the market for a change. The reasons that the market could celebrate are multi-faceted:

  • The sword of Damocles (i.e. Citigroup) has been neutralized with a safety net at least in the short term.

  • There is a perception amongst certain institutions of confidence in the emerging Obama team

  • We are in the "holiday" season

  • The auto companies will almost certainly get a bailout

    On the negative side there are a few things to worry about though

  • According to a Bloomberg report this morning

    The U.S. government is prepared to lend more than $7.4 trillion on behalf of American taxpayers, or half the value of everything produced in the nation last year, to rescue the financial system since the credit markets seized up 15 months ago.

  • Hank Paulson still has six more weeks to go.

  • The housing market continues to show no signs of approaching a bottom

  • Those who have had Citigroup in their sights will now start looking elsewhere.

    The one thing that I feel very confident about is that there remains a very volatile environment ahead where buy and hold investment strategies will fall even more out of favor.


    According to press reports in the UK the government is about to launch an aggressive fiscal stimulus package designed to enable the UK economy to spend its way back to prosperity.

    It appears from leaks to the press that Value Added Tax, the most conspicuous form of indirect taxation, will be the main vehicle to be adjusted. A reduction of 2.5 percentage points (the maximum allowed for EU members) is being targeted in an attempt to encourage the punters to get out in the stores this Christmas season and do their duty as good consumers. But this approach is looking increasingly desperate especially as there are also suggestions by the current UK Chancellor, in order to show his credentials for prudence to the global capital markets, who still might decide to dump sterling and UK Treasury paper in response to the moves, that in the longer term the working stiffs should expect tax rises in order to pay for these short term emergency measures.

    In the long run is this really the solution to the UK’s economic problems? The question is especially acute for the UK economy which has a zero savings rate and some of the highest levels of personal indebtedness in the world. Why are UK policy makers continuing to focus on trying to enhance the marginal propensity to consume when it would be so much better, for the structural economy, in the longer term, to be looking at ways of decreasing the marginal propensity to take on more debt?

    Gordon Brown’s proposed new mini-budget along with a host of other recent posturing and antics puts a new focus on the real meaning behind the Clinton saying “It’s the Economy Stupid”. Failure by any politician to be visibly concerned about the plight of the common man, not to be seen to be very busy and doing something active and positive during dire economic times is a recipe for electoral defeat and like Clinton before him Gordon Brown knows this only too well. Much better to be seen rushing to world summits and convening G20 meetings, encouraging the central bank to make emergency rate cuts and having countless initiatives that ultimately tap into public monies to get the economy “moving” again. And alas the UK punters are gullible and would rather a government that appears to be addressing their concerns than providing a sound basis over the longer haul for a more rational economy.

    UK government policy is now transitioning from the denial phase where constant reassurances were given that the "fundamentals are sound" (someone should set that to music) to the "let’s throw everything including the kitchen sink at it and say our prayers dutifully" phase.

    Gold prices catapaulted higher in Friday’s session as they broke convincingly through the critical $750 per ounce level. The Gold Index (^GOX) which includes the mining stocks made a sharp move higher and broke free from a well formed triangular/wedge pattern.

    This is a market that has a habit of disappointing the bulls almost on an habitual basis so I would caution any enthusiasm until we see how the mining stocks behave in particular as we approach the 50 day EMA on the chart below (the red line).

    TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 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

    DGL  PowerShares DB Gold Double Long  

    The exchange traded fund DGL provides a long play on gold with two to one leverage and as the chart suggests there is a real test for this fund at $31.



    HYG  iShares High Yield Corporate Bond  

    HYG is an ETF which tracks the high yield corporate bond market and as I indicated a couple of weeks ago in this column and in a slot on CNBC the failure at key retracement levels suggested that the mid October lows were back in play. This was confirmed in Friday’s trading and I would advise, at this point, that if you had been short recently it would be prudent not to overstay one’s welcome.



    PCY  PowerShares Emerging Mkts Sovereign Debt  

    The ETF that tracks the price of emerging sovereign debt, PCY, shows two clear failures at the 50% retracement level from the early September highs to the mid October lows. More significantly this sector has now dropped below the 38% retracement level.



    IBB  iShares Nasdaq Biotechnology  

    A couple of weeks ago I expressed doubts that there would be a rally in the biotech sector, but now reviewing the chart for the exchange traded fund, IBB, I would suggest that the risk/reward prospects look more encouraging on the long side.



    CMF  iShares S and P California Municipal Bond  

    CMF is an exchange traded fund that allows one to express a view on the strength or otherwise of the municipal bonds of the state of California. In Friday’s session there was a range expansion and a drop below key moving averages. The volume was not substantial but this will be on my Watch List this week for further signs of weakness.

  • Daily Form November 21, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    FRIDAY NOVEMBER 21, 2008       04:30 ET

    The S&P 500 (^SPX), along with other indices, took out vital support levels yesterday and closed at an eleven year low. I shall focus on this index in a weekend analysis.

    One chart that I want to look at today is for the Russell 2000 (^RUT) which has dropped more than fifty percent in the last 80 days.

    The fibonacci retracements from strategic lows experienced during the 1990’s and the high from last October pivot at the 600 level which is exactly the 50% retracement level and where other areas of chart support/resistance map quite cogently on to the fibonacci grid.

    The target that I believe is now feasible in the intermediate term for this index is approximately 340.


    Yields on the thirty year Treasury bond (^TYX) have fallen to their lowest levels and as the very long term monthly chart reveals the drop below 4% fits surprisingly well into a massive long term wedge pattern with the most recent baseline being decisively penetrated yesterday.

    The action yesterday for the long bond captures the fear in the market place for which Mr Paulson and his change of view on the purposes of the TARP must surely take a large part of the responsibility.

    TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 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

    JPM  JPMorgan Chase and Co.  

    JP Morgan (JPM) is increasingly being seen as another troubled bank and yet again Mr Paulson’s reluctance (or incapacity) to address the removal of toxic assets from bank’s balance sheets has caused a sea change in this chart over the last several sessions.



    C  Citigroup Inc.  

    The announcement, before the market opened yesterday, that Saudi Prince Alwaleed Bin Talal had increased his stake in Citigroup (C) with a $300 million investment had all of the hallmarks of desperation.

    Failure at Citigroup, precipitated by deposit withdrawals on a global basis, would even make Lehman’s demise seem tame by comparison.

    Daily Form November 20. 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    THURSDAY NOVEMBER 20, 2008       07:03 ET

    The S&P 500 has almost completed the retreat to the 2002/3 lows which I have been anticipating in this column for several months. The intraday low on the cash index reached 806.18 and I suspect that we need further attrition to test lower levels nearer to 2002 lows around 770 before making a further interpretation of the technical condition for US equities and the longer term outlook.


    Yields on the ten year Treasury note (^TNX) continued down again after the break in the trend-line noted in yesterday’s commentary. Also evident on the long term monthly chart is the fact that the 2003 lowest yield just above 3% could be targeted.

    In trading Thursday morning in Asia there was widespread selling and it was the Nikkei which saw the largest drop of 7%. It appears that the recent panic low, which took the index to levels not seen for 26 years, needs to be re-tested.

    TRADE OPPORTUNITIES/SETUPS FOR THURSDAY NOVEMBER 20, 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

    IYR  iShares Dow Jones US Real Estate  

    In my comments yesterday I noted that the sector fund IYR which tracks the Dow Jones Real Estate index was showing no signs of continuing price erosion and we saw another 12% fall yesterday.



    BAC  Bank of America Corporation  

    The major banks are crumbling with Citigroup registering a 23% drop yesterday and my focus stock, Bank of America (BAC), confirmed yesterday, with its 14% drop the reliability of the signals based upon a violation of the baseline of a descending wedge pattern.



    NLY  Annaly Capital Management Inc.  

    The drop down from overhead resistance from two moving averages for Annaly Capital Management (NLY) has violated the uptrend line indicated and suggests that there could be a revisit to recent lows.



    DRYS  Dryships  

    The chart for Dryships (DRYS) is one of the most spectacularly bearish in a market where one is spoiled for choice in selecting suitable candidates for that role.

    I would be very wary on the short side for such a high beta stock and at some point a very sharp rally is to be expected.

    Daily Form November 19, 2007

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    WEDNESDAY NOVEMBER 19, 2008       07:14 ET

    On the daily charts yesterday most indices managed to confine their intraday lows within the recent ranges. The exception was the Russell 2000 (^RUT) which actually printed a new multi-year intraday low and closed the session as the obvious out-performer on the downside with an 0.8% decline.

    The chart I have shown below is a long term monthly chart going back to 1998 and it shows a couple of revealing technical features. The first is that the steady fall throughout November (already 16%) has now brought this index substantially below the 62% retracement level of the swing high and low covered in the chart. At the conclusion of the very difficult month of October we were more or less exactly at that retracement level.

    This clearly suggests that institutions are still unloading the small cap stocks and there is no real evidence that value players are actively seeking out bargains.

    Also noteworthy is the fact that this is one of many equity indices that is now below its 200 month moving average.


    The yields on the ten year US Treasury have dropped quickly in recent sessions and have now broken the trendline through a succession of recent higher lows. The combination of severe recession fears and continued flight to safety are clearly the principal forces at work here.

    I am still of the view that when equity investors claim that they can see the green shoots of recovery in the global economy the long term US Treasury market will see a rather dramatic rise in yields.

    The Shanghai Composite (^SSEC) is one of the few global indices to show a green candlestick for trading during the month of November so far with a ten percent rise. The long term chart shows just how precipitously this index has fallen over the last year but there is very little guidance from a purely technical point of view of any real support between the 1000 and 2000 levels on this index.

    Needless to say that leaves a lot of room for prices to continue to become even more attractive.

    TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 19, 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

    IYR  iShares Dow Jones US Real Estate  

    The exchange traded fund which tracks the Dow Jones Real Estate Index is more or less back in the zone it was trading during 2002/3 and still there is no evidence that the attrition will not continue.

    Here is a piece which I have recently written for another publication and which offers my view on the likelihood that fiscal stimulus efforts will help to turn the real estate market around.

    WILL TAX CUTS AND FISCAL STIMULUS IMPROVE THE REAL ESTATE MARKET?

    The recent G20 meeting appears to have embraced the Keynesian notion that in order to stimulate Aggregate Demand there should be a fiscal stimulus of about 2% of global GDP. Without going to deeply into the Keynesian theory the multiplier affect can then enable this direct stimulus to be translated into more jobs and investment, all of which will enhance aggregate demand in a self-reinforcing manner that should, at least according to the theory, arrest the contraction in global economic activity.

    Several major problems exist now for this diagnosis not the least of which is the nature of the multiplier affect and the ability and willingness of consumers and corporations to actually spend the additional purchasing power that governments are intending to create.

    The ability will depend a lot on the indebtedness and solvency of many households, especially in those economies which have non-existent savings rates such as the US and the UK. The marginal propensity to consume for such households may be virtually zero and therefore inhibit the multiplier effect. Even those who may tempted to use extra purchasing power but require it to be supplemented by bank borrowing, or access to credit, will face the fact that the banking sector will, probably for the foreseeable future, be more intent on hoarding the cash being injected by governments to rebuild their balance sheets.

    But the biggest problem is that the marginal propensity to consume at the level that really matters, in other words to start purchasing homes again, depends on whether consumers feel that there is another kind of multiplier effect at work. The median price of homes in the US and UK are still essentially not affordable, in terms of their relationship to median income for those economies.

    Also it is becoming harder to justify home ownership from a purely economic perspective in comparison to the costs/benefits of renting.

    It is only when you can add in a sizable capital gains amount to the future cash flows from home ownership that buyers will be tempted back into real estate. Being able to factor in periodic capital gains into the cash flow analysis of course alters the affordability calculations as it is somewhat equivalent, or at least was perceived that way, to having supplementary income that increases one’s ability to service the mortgage costs.

    Critically, it is the re-emergence of even a nascent housing bubble that needs to kick in again to drive this “multiplier” and this must surely be the hidden agenda of all of the government rescue plans. Whether or not it will work is unclear but what is most alarming is that if it does it will only be sewing the seeds for another credit crisis down the road.

    Fundamentally it will fail to address the real problem with the housing sector, and many other parts of the economies of the developed world, which is that they are nowhere as rich as they think they are and for most of their citizens the realization has to come that, even at current depressed levels, they simply cannot afford to own their own homes.

    This will remain the case unless real estate prices come down a lot further still or incomes for average workers go a lot further up.

    Alas neither of these options is easy for politicians to sell so the recession, that ultimately hinges on finding some bottom to home prices, may have to continue long enough for Wall Street to come up with a new daisy chain to re-invent a new mortgage backed securities market.



    JPM  JPMorgan Chase and Co.  

    In addition to Citigroup (C), Bank of America (BAC) and Goldman Sachs (GS) which seem to fall every day the chart for JP Morgan shows that yet another of the blue chip financials is in a somewhat precarious condition.



    BIDU  Baidu.com Inc [ADR]  

    At the end of October I commented on the following:

    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.

    Often it makes sense to hold on to at least half of one’s position when there are such clearly demarcated technical patterns.

    Daily Form November 18, 2008

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    TUESDAY NOVEMBER 18, 2008       07:13 ET

    The S&P 500, as expressed in the chart for its proxy fund SPY, is moving ever nearer to the apex of the descending wedge pattern at which point the indecision over a major directional move cannot be prolonged.

    The fundamentals are suggesting that we are headed down and the technicals, as I discussed in a CNBC slot yesterday, are somewhat confused by the strong positive divergence on the MFI chart but which has failed to rally the index. The positive volume flow reached above a reading of 70 and yet the price has stubbornly been attracted to the baseline of the wedge pattern.

    My main concern is that the bearish interpretation seems just a little too obvious but should the "support" lines of the last month break down there could be an avalanche of selling ahead.

    All of which adds up to a fairly hazardous environment for position traders but a very good intraday trading environment.


    The Nasdaq Composite (^IXIC) is technically the first of the major US indices to register a new multi-year closing low and in so doing puts focus today on the baseline of the wedge formation and the intraday low from last Thursday’s session.

    The exchange traded fund that tracks the prices of a cross section of high yielding corporate debt shows that the markets are discounting a lot of distress in this "junk bond" sector. The two retracements have failed at key fibonacci levels - the 50% of the move down to mid October failed at point A and the more recent attempt to break above the 38% retracement level failed at point B.

    Some analysts are pointing out that the level of defaults now being discounted is far in excess of the view that has been "supporting" equities to date. So we may be about to see which of the two views on the severity of the global downturn is more accurate.

    The chart for XLF clearly reveals the way in which all of the efforts by the bulls to call a bottom in this sector are still being met by a grinding realization of any quick gains by short term traders and a lack of real belief from potential institutional accumulators that the bottom is in place.

    TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 18, 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

    BAC  Bank of America Corporation  

    This is the third time that I have drawn attention to this chart in the last two weeks and I shall simply repeat my previous comments

    Bank of America (BAC) is also now convincingly registering new multi-year lows...the overall market is hanging on by its fingertips and could be on the verge of cascading downwards, and it is to stocks like BAC that I shall be looking in the days ahead for clues as to how deep the chasm ahead might be.



    LQD  iShares iBoxx Invest Grade Corp Bond  

    The investment grade corporate bond sector has clearly outperformed the high yield sector but the fund LQD reveals that there is a formidable hurdle to be overcome at the 62% retracement of the downward move in October.

    Daily Form November 17, 2008

    CLIVE CORCORAN WILL BE A GUEST ANALYST ON CNBC's POWER LUNCH EUROPE TODAY

    Detecting Profitable Patterns For Active Traders
    Trade successfully without having to be right about the underlying market direction
    MONDAY NOVEMBER 17, 2008       03:33 ET

    Friday’s action saw a reversal of a large part of Thursday’s rather technical rally.

    I have focused on the chart for the exchange traded SPY as it allows a better opportunity to evaluate the momentum and money flow characteristics of this key equity index as it can be based upon the volumes being traded on this proxy.

    It would seem, especially considering the acute upward slant lately in the money flow index, that this should have been more favorable for the bullish case in the recent past than it has been.

    The MACD chart, which is now becoming somewhat more reliable after the month of October when market action rendered this indicator effectively useless, registers the fact that last week’s test of the recent was not accompanied by any conviction and downside momentum.

    My hunch, and it is nothing more, is that we are witnessing a platform from which the bulls are expecting, and perhaps more importantly hoping , to build a rally into the end of the year.

    Sometimes these charts reveal more psychology than is evident on the surface and this chart speaks to me of still a lot of optimism that a tradable bounce is now due.

    It also underlines my concern that, in terms of a washout for this troubled market, there is still too much bullish hopefulness in the market.

    I would be very wary of expecting closes much above the 1000 level on the S&P 500 cash index and longer term there is still a strong case to be made that we will see a further leg down.


    The US dollar, as well as the Japanese yen, continue to be the currencies that are seeing the most benefits from the huge redemptions resulting from the unwinding of the most speculative and leveraged activities in the global capital markets.

    Reviewing the weekly chart for the Euro for the last three years, and the recent spike down to 2006 levels it is tempting to suspect that the short term trend for the eurozone currency, especially as the fundamentals continue to weaken, is for a continuation of the downtrend for a robust test of the $1.20 level.

    The chart below reveals an index comparing the price of gold in both US dollars and UK sterling. The historic high for the metal achieved on March 17th and market at point A is being used as the base of 100 for the index.

    Clearly illustrated is the precipitous slide of the pound since late July as the chart reveals that from the perspective of a sterling investor the price of gold is now more or less at its historic high sterling level again.

    On the contrary the price in terms of the US dollar is now only 75% of what it was in March.

    The trend of higher lows in the most recent time frame for gold in sterling suggests that from the point of view of declining purchasing power and the potentiality for imported inflation the UK currency is now in a rather disturbing trend.

    The chart below shows an index illustrating the price of US Crude Oil (as reflected in the sector fund USO) expressed in both US dollars and Euros.

    The baseline has been selected at the beginning of 2007 as it captures the lowest point in dollar terms which also coincides with the lowest euro price.

    Two things strike me about the chart. The first is that the historic high level in dollar terms reached a fibonnacci uplift level of more or less 2.68 times the base level price.

    The second intriguing aspect to this chart is that we have come back down to almost parity with euros in terms of the price of crude as traded in dollars. About another five to ten percent adjustment, and it can come from two sides - changes in the value of the commodity as well as the foreign exchange levels - would lead to a reconvergence of the index. The entire benefit that the Eurozone has enjoyed for two years with its greater purchasing power with respect to key commodities has now been erased.

    TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 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

    SMH  Semiconductor HLDRs Tr ML  

    The semiconductor sector has returned exactly to its lows from 2002 and 2003 and on the monthly chart there is little suggestion of any accumulation or possible beneficial consequences arising from any evidence of momentum divergences.



    IYM  iShares Dow Jones US Basic Materials  

    IYM, the exchange traded fund consists of key stocks in the industrial materials sector. A similar pattern is now present on this sector fund to the one seen on the SPY chart. There are positive MACD divergences and the money flow has been building steadily over the last three weeks but this has, as with the equity sector index, not really produced a sustained upward price move. The technical problem that I see with this chart is that with an MFI reading now above 70 and with the effort more or less spent we may have already seen the bullish contribution such as it was.