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.


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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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.