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.


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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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.