Daily Form December 17, 2008

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY DECEMBER 17, 2008       06:28 ET

As I intimated in yesterday’s commentary there was a possibility that Chairman Bernanke would come through with some novel policy initiatives. As things turned out the markets got almost more than they could have hoped for. The decision to target rates at zero effectively was only part of the surprise - rather it was the implicit underwriting of mortgage backed securities and an explicit articulation of a commitment to substantial quantitative easing which created a lot of rejoicing in the fixed income markets.

The big casualty of the session of course was the US Dollar with both the Japanese Yen and the Euro continuing their breakout beyond where I was expecting, although to be fair on myself, I did qualify my comment yesterday by pointing out that an extraordinary move by the FOMC could trigger further dollar selling.

The euro is now back in the $1.40’s and perhaps has the renewed vigor to surprise even further on the upside, although some consolidation at current levels would not only be expected but also constructive.

I have profited well this year from the forex arena with short positions in sterling both against the dollar and also against the euro over several weeks, and then playing the EUR/USD recovery recently, so I shall not begrudge the fact that the last few cents of the euro rally have passed me by.


Traders in the S&P 500 (^SPX), especially in the futures markets, celebrated the eponymous move by the FOMC yesterday with a substantial rally. It did not quite bring the cash index to the 50 day EMA level but stopped at the intraday high from just over a week ago, on December 8th to be exact.

Let’s see if there is sufficient follow through to break this index decisively through the fifty day moving average and perhaps even take a run at the 1000 level before Santa gets on his sleigh.

The Dow Jones Industrials Index was not quite able to make it to 9000 but came very close. Reviewing the exchange traded proxies for the major US indices, including DIA for the Dow Jones, the volume was not as substantial as might have been expected from such an accommodative policy statement from the Fed.

Watching volume in coming sessions will allow a realistic appraisal of how much staying power and dynamism there is accompanying the improving sentiment.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 17, 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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EWW  iShares MSCI Mexico Index  

The MSCI Mexico Index, as tracked by the sector fund EWW, has made a strong break above the 50 day EMA and upper volatility band on substantial volume and looks set to challenge the intraday high from October 10th.



FEZ  DJ Euro STOXX 50 ETF  

The exchange traded fund which is based on the EuroSTOXX 50 index, FEZ, shot up by more than seven percent yesterday although the money flow is not sending a confirmation for a move of this magnitude.



FXA  Currency Shares Australian Dollar  

Here are my comments from just over a week ago about the likelihood of a large gain in store for the Australian dollar

A more benign climate for equities, if it is sustained, could allow a slightly more adventurous approach for global capital flows. In such circumstances I would expect to see a rally in the Australian dollar, FXA.



GLD  streetTRACKS Gold Trust  

My recent recommendations regarding gold and the gold mining stocks have proven to be very profitable but, as the sector fund, GLD, reveals there is now a challenge for the precious metal at the descending trend-line through the highs.

If we can break above this potential resistance there could be new historic highs in store for the precious metal in coming weeks.



IYR  iShares Dow Jones US Real Estate  

With a more than 12% increase yesterday, I shall cast modesty aside and repeat the comments made here on Monday.

IYR, which tracks the Dow Jones Real Estate Index, is revealing some rather noticeable positive divergences.