Daily Form November 6, 2008


Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY NOVEMBER 6, 2008       06:40 ET

Several factors can be cited as contributing to yesterday’s sell-off which has carried over into Asian and European trading on Thursday morning

  • The familiar buy on the rumor sell on the news phenomenon concerning Obama’s victory

  • The fact that many global indices had recovered back to key levels - either 38% retracement levels or 50 day EMA’s (in several cases these had converged)

  • The realization that despite all of the hope surrounding a new Administration the fact remains that there are profoundly weak economic fundamentals

  • The ADP report brings into focus the fact that the Department of Labor’s data to be released on Friday could be alarmingly weak

  • Mounting evidence that credit is still not readily available to small businesses and consumers.

    I continue to look carefully at the banks and the financial services sector as it seems that until we see a real convincing bottom in place here we shall have fits and starts in any recovery efforts in the broad market. As the banking index (^BKX) illustrates there has still been no decisive change to the notion that rallies are being used by traders and fund managers to exit short term trading positions. Coupled with this, there is still very little evidence of any rush to climb aboard a train that is leaving the station.

    In overall terms we may see a further attempt in today’s session to discount Friday’s employment report as has been customary in recent months.

    The Dow Jones Transportation Index (^DJT) was one of the main casualties amongst broad indices yesterday as it dropped by 6.7% after notably failing in the last two sessions to take out the October 14th intraday high.

    The chart below includes trading on Thursday morning for Germany’s DAX index and I could not resist restating the point I made in yesterday’s commentary.

    The pronounced "V" shaped rally now looks in need of a rest.

    While many indices have encountered resistance as they approached their 50 day moving averages, the CBOE Volatility index encountered support in the vicinity of this same moving average.


    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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    BAC  Bank of America Corporation  

    One chart in particular illustrates the frustrating nature of efforts to get a rally going in the banks and confirms for me that the problems in this critical sector of the US economy are deep seated. Bank of America (BAC) has been thrashing around over the last three months to get a rally started but I am not convinced that fund managers are convinced that a bottom is, in fact, in place yet.

    UNG  United States Natural Gas  

    One of the few sector funds that could be worth monitoring for a potential entry point on the long side is UNG for the natural gas sector.

    FXI  iShares FTSE-Xinhua China 25 Index  

    FXI, an exchange traded fund for the Chinese market, is yet another fund that underlines the fact that the underlying dynamics of the market at present can best be described as a series of failed rallies within a structural bear market.

    PEY  PowerShares HighYield Dividend Achievers  

    The exchange traded fund PEY, which tracks high dividend paying stocks, looks vulnerable to further losses as volume moved up on yesterday’s seven percent decline.