Daily Form October 6, 2008

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Trade successfully without having to be right about the underlying market direction
MONDAY OCTOBER 6, 2008       07:11 ET

The closing action on US indices following the passage of the stabilization measure by the House of Representatives last Friday underlines the fact that markets have a massive amount of bad news still to digest.

Over the weekend the disarray amongst the European governments/central banks also reflects that the entire global financial system is infected with the same toxic waste issues as the US has been confronting.

One of the most remarkable developments has to do with the sovereign risk of the Icelandic economy whose three main banks have potential problems on their balance sheet that exceed the GDP of this sparsely populated island by a multiple of several times.

The S&P 500 (^SPC) closed out last week just below the 1100 level, and whether or not the index can find some reason to catch its breath on the way down at this previous support level, may now be dependent on the ability of other global decision-makers to find some method of halting the financial meltdown.


The DAX in Germany is currently down by 6% as this is being written and the decision by the chancellor Angela Merkel to back stop all retail deposits, apart from causing anger amongst the other EU nations, suggests that fear and trembling is now rife in what is still the strongest economy in Europe.

I have revised my previous gloomy forecast for this market and would suggest that downward targets of 5000 are now in play.

The Hang Seng Index (^HSI) was one of the weaker markets in Asia in trading Monday and this market looks headed down towards 15000 in coming sessions.

Some financial commentators are now factoring in the possibility that there could be a disintegration of the monetary union amongst the EU states upon which the euro currency was founded. Such a development, which until recently would have seemed almost unthinkable, could have a calamitous effect on global capital flows with hard to imagine ramifications.

The flight to safety of the US dollar could be dramatic, but if things get really ugly then, as some of the doom merchants have been suggesting, gold could well become the ultimate safe haven. Once the fear genie is out of the bottle it can take a very long time to restore people’s confidence in the banking system.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY OCTOBER 6, 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.
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IYR  iShares Dow Jones US Real Estate  

The exchange traded fund for the Dow Jones index for US real estate, IYR, has broken below a key support level in last week’s trading.