Daily Form October 10, 2008


Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY OCTOBER 10, 2008       06:20 ET

When markets are in complete freefall only the longest term charts can provide any useful guidance. All of the normal interpretation that one tries to determine from moving averages, momentum and oversold indicators, money flow etc. are practically useless.

Let’s revisit some of the monthly charts that I showed earlier this week. In the first case the longest time frame that I have selected shows the Nikkei 225 (^N225) over almost 20 years since the blow off top in 1989.

After Friday’s trading where the index crumbled almost 10%, its second fall of this magnitude this week, we are now within a whisker of the 2003 lows on this chart.

It is a sobering thought that many of the same bubble characteristics that we are now coming to terms with in North America and Europe were in abundance in Japan during the 1980’s. Just in October alone this index has dropped by more than 25%.

A shorter time frame on the nonthly chart for the DAX index reveals that the 4400 level which is more or less where the index is at the time of writing lies at the 62% retracement level of the twin peaks seen on the chart.

Whether at the end of the day that amounts to a hill of beans is unclear.

It seems that the S&P 500 (^SPC) which is now in a nose dive will be testing levels in the neighborhood of 800. If these fail we truly are facing, from a technical analysis perspective, a complete absence of useful clues as to where this could end.


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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C  Citigroup Inc.  

Here is a twenty year monthly chart of Citigroup (C). Can the US government let this fail? Can the US government afford to rescue this?

GM  General Motors Corporation  

Here is a long term chart of General Motors (GM). Are people concerned about liquidity here or insolvency?

F  Ford Motor Company  

Here is a long term chart of Ford (F). Are people concerned about liquidity here or insolvency?

AA  Alcoa Inc.  

One final shocker is for Alcoa (AA), another Dow component, which suggests that concerns about survivability have moved beyond the usual suspects.