Daily Form January 30, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JANUARY 30, 2009       06:14 ET

The very pronounced tapering triangle formation shows that the Nasdaq 100 index (^NDX) is approaching a point where market players will have to make a tough decision.

Traders may, understandably, want to postpone a major test of support and resistance until the dust settles with respect to all of the initiatives being discussed by the new administration. However the charts are suggesting that wiggle room is disappearing.

Until the market shows its hand the best strategy I have been finding in recent days is to be nimble and keep the holding of positions overnight to a minimum.

Reviewing this last week, several stocks mentioned here have performed well - Sepracor (SEPR) surged yesterday, FXE is correcting as suggested, Legg Mason (LM) could have provided a very nice profit on the short side as did Amdocs (DOX) in yesterday’s session

Even Jacobs Engineering (JEC) which I suggested on Thursday as a short candidate, as it reached towards $45, would have delivered almost seven percent yesterday.

My policy has not been to provide specific entry level suggestions and the reader is advised to inspect intraday patterns for selecting their own best points of entry. My intention is to offer suggestions as to eventual direction but my crystal ball is not that finely tuned (yet!) to give precise recommendations on timing and/or entry and exit levels.


The bearish interpretation provided here recently and on CNBC Europe last Friday for the Euro/USD rate is unfolding as expected. Targets in the low $1.20’s could be attainable in the next few sessions.

The worst industrial production figures since records began more than 50 years ago proved to be very unsettling for the Japanese market in Friday’s trading with a drop of more than 3%.

When drawing the downward sloping line on the Nikkei 225 chart I have avoided the late 2008/early 2009 rally and the resultant pattern provides the proper insight into what is an increasingly bearish looking descending wedge pattern.

As anticipated earlier this week the yields on the US Ten year Treasury note have continued to move higher and have even taken out the 2.75% level.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JANUARY 30, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

FXY  Currency Shares Japanese Yen  

A rolling top pattern is becoming increasingly apparent on the Japanese yen, as tracked by the exchange traded fund, FXY. As can be seen a rather critical uptrend line could be violated in coming sessions.



GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) would likely meet considerable overhead supply if it makes it up towards $90.



NVLS  Novellus Systems Inc.  

Novellus Systems (NVLS) has bounced around very erratically but in today’s trading I would expect to see a bounce. I am finding that in current market conditions I am holding positions for shorter periods and trading in and out with reduced expectations of making positional gains but rather exploiting the ebb and flow of what is a fairly nervous and erratic market.



XRX  Xerox Corporation  

Xerox (XRX) has a rather well defined bearish flag formation.

Daily Form January 29, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JANUARY 29, 2009       06:43 ET

The discussion in Wednesday’s commentary about the KBW Banking Index (^BKX) received further validation in trading yesterday. The 14% plus rise in the index has now provided, at least for the time being, a positive divergence which suggests that the sector has further gains ahead.

I would not expect this to be a smooth ride at all and there will almost certainly be significant reversals.

One of the topics that I have discussed at some length in Long/Short Market Dynamics is the fact that gaps are often found in clusters. Yesterday’s big upward gap for the KBE fund which tracks the index (see below) as well as several of the major individual banking stocks was encouraging, but the clustering of gaps phenomenon shows that there often big upward and big downward gaps associated with significant turning points.


The S&P 500 (^SPX) has further potential for upward progress but in some ways it would be more constructive for the bulls at the moment if the progress is based on more evidence of long fund managers buying rather than lots of funds covering short positions in the financials.

Just to repeat yesterday’s comment which applies again for today’s session.

I shall be tracking the sector fund, HYG, a tradable vehicle for those interested in the high yield debt sector. The pullback could be near to completion and another move towards $80 is feasible.

The FTSE rallied exactly back to resistance at the 50 day EMA and is seeing a retreat in Thursday morning’s session.

Upside targets around 4600 are still attainable in the intermediate term as this index appears to be in a mode of repeated testing the upper and lower limits of a well defined trading range.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JANUARY 29, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

LM  Legg Mason Inc.  

I mentioned on Tuesday that I was looking at Legg Mason (LM) for a short term opportunity on the short side as a bearish pullback pattern was emerging.

Even with yesterday’s rally in the financials, a short position established during Tuesday’s session could have delivered more than ten percent profit as the stock sank quickly on the open but recovered somewhat into the close.



KBE  SPDR KBW Banks  

The intraday chart for KBE, the exchange traded fund which tracks the Banking Sector index referred to above, shows a good example of the upward gap that would have frustrated a number of traders who placed market on open orders although it eventually resolved itself with a small profit towards the end of the session for day traders.



WFC  Wells Fargo and Company  

My favorite chart from yesterday, which also provided a great trading opportunity for day traders, is the one below for Wells Fargo (WFC). There was a gap on the open but there was still plenty of scope for what could have been a 25% plus gain in a few hours of trading.

This chart illustrates that the best long trades are often to be found when others are steadily covering short positions throughout the whole session.

Pullbacks should be seen as further opportunities on the long side as this bank may be better placed than most to benefit from a change in sentiment regarding financials.



EBAY  eBay Inc.  

EBAY could be vulnerable as it approaches the level indicated on the chart.



STX  Seagate Technology  

Seagate Technology (STX) also looks vulnerable and a good entry would be close to the 20 day EMA around $4.20

Daily Form January 28, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JANUARY 28, 2009       05:53 ET

The hourly QQQQ chart reveals a bullish ascending wedge pattern but also points to two resistance barriers that now need to be confronted.

The more significant perhaps is the 200 hour EMA at $29.50 which more or less coincides with yesterday’s close but also there is potential for considerable overhead supply as the Nasdaq 100 tracking stock approaches $30.

I am leaning more towards the long side at present but would expect some continuing turbulence in coming sessions.


I shall not make any rash predictions about the technical state of the banking sector but I will merely point out that the KBW Banking Index (^BKX) is revealing evidence that a basing price and MACD pattern may be evolving.

Even more noteworthy, if the patterns are confirmed in coming sessions, is the fact that in this instance the MACD would not have moved to a new low in terms of its emerging base. This would be in contrast to when the MACD confirmed, from a momentum perspective, the price low achieved back in November.

And now for something completely different - a short posting from my blog site .

INCREASED AVALANCHE RISK IN DAVOS

Top bankers should not have forgotten during the 2003-6 boom years that it always has been, and always should be, in their best long term interest to be even more focused on PR than Hollywood - after all they have bigger illusions to protect than those in LaLa Land,

Evidence is emerging that the "Masters of the Universe" are listening closely again to their public relations handlers as it has been announced, in the last day or so, that the leading lights from Barclays, Citigroup and Goldman Sachs are all staying away from Davos in 2009.

Not surprisingly this year’s World Economic Forum in the Swiss mountains will be primarily attended by politicians, presumably being advised by their spin doctors that it is good for politicians to look very busy during these very troublesome economic times.

Anyone planning to go ski-ing in the Davos locality over the next few days should be extra vigilant as there is an increased likelihood of avalanches as a result of all of the hot air emanating from the conference.

I shall be tracking the sector fund, HYG, a tradable vehicle for those interested in the high yield debt sector. The pullback could be near to completion and another move towards $80 is feasible.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JANUARY 28, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

DOX  Amdocs Limited  

Amdocs (DOX) could be attractive on the short side in the region of $19.

Daily Form January 27, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JANUARY 27, 2009       05:42 ET

There was a fairly constructive tone to US equities trading yesterday, perhaps partly inspired by some strong gains in Europe. As noted yesterday Barclays bank was a major dynamic in trading throughout Europe yesterday after the bank provided some reassurances that it is not in urgent need of capital. Whether the markets continue to believe that remains to be seen but there was a massive short covering rally which even spilled over into trading in Asia overnight.

The S&P 500 (^SPC) is showing signs that a trading range regime is in effect with 800 or thereabouts as a downward limit and 930 as the upper limit.

Rather than attempting to read the tea leaves for each day to day move, one approach that some traders appear to be taking is one of being fairly detached and buying the index when the lower level is being approached and reversing as we come back towards the 900 level.

This may be the sanest way to play things until longer term directional become more apparent.


The Nikkei 225 (^N225) had a very positive session on Tuesday as the index leapt by almost five percent. Once again a trading range is evident.

Yields on the ten year Treasury note (^TNX) are slowing in their ascent and a 2.75% yield seems like a target during this week which will see a lot of refunding activity.

The exchange traded fund, FXE, will be on my radar screen for entry opportunities on the short side around $1.33.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JANUARY 27, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

PFF  iShares S and P U.S. Preferred Stock Index  

PFF, which tracks the S&P Preferred Stock Index, can provide useful insights into the appetite which institutions have for the less visibly trade capital structure of the banks.

It is becoming one of the barometers that I am using for assessing, at least at a fairly simple level, the risk aversion/speculation matrix.



SHY  iShares Lehman 1-3 Year Treasury Bond  

There are a huge variety of exchange traded funds focused on fixed income asset classes which provide good trading opportunities in the current environment.

The fund which tracks the short duration Treasuries (1-3 year), SHY, appears to be over-extended but may find support at the 50 day EMA (red line on chart).



ADSK  Autodesk Inc.  

I would also be looking at Autodesk (ADSK) for opportunities to sell on any further rebound following the recent large gap down.



LM  Legg Mason Inc.  

Legg Mason (LM) will be on my Watch List for a short term opportunity on the short side as a bearish pullback pattern is emerging.



OMC  Omnicom Group Inc.  

Omnicom (OMC) looks like it could be vulnerable to further weakness in the vicinity of $27.

Daily Form January 26, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY JANUARY 26, 2009       06:24 ET

Last week, shortened as a result of the holiday on Monday, managed to reveal a rather unusual pattern on the chart for the Nasdaq 100 index (^NDX) that can best be described as an inside week - in the sense that the outer bounds of the weekly range were established in Tuesday’s session and not transgressed during the rest of the week’s trading.

The tech sector appears to be meandering, as echoed in the relatively neutral reading on the RSI chart segment, although several other indices are close to critical testing. One of the reasons that I am becoming more focused on the big tech stocks is the fact that I would expect them to show leadership qualities in the coming weeks - even if that is to lead the overall market down. As others have observed the market capitalization of the S&P 500 has been shifting significantly away from the financials over the last two years - in 2006 they accounted for more than 20% of the index capitalization - now only 10% - whereas the technology sector is now the dominant sector in the US broad index.

Overall we seem to be in a trading range but always with the possibility that index traders will want to have another shot at seeking out lows below those seen in November 2008.


The chart for the Euro versus the US dollar looks remarkably bearish. As I noted in a CNBC slot last Friday there is a formation that I have described as downward staircase pattern. This consists of a succession of small bear flags which followed the climactic buying that took place in early December. Targets at or even just below $1.20 could be attainable in the intermediate term.

The Dow Jones Transportation (^DJT) is flirting with the November 2008 low. The most positive thing that can be said about the technical condition of the chart below is that the current RSI readings are slightly above the values seen in November.

But, of course, this could easily be erased with another nasty sell-off.

Also discussed on the CNBC slot last Friday was the chart for the French index - the CAC40. This is not an index that I follow too closely but the story is quite interesting as it did close at a new multi-year low on Friday and the evidence from the downward wedge pattern suggests, as I mentioned, that the index is hanging on by its fingertips.

Of the major European indices the CAC40 is the closest to the March 2003 lows - about 15% away from those levels. The overall outlook for the eurozone economies is declining rapidly and it would not be surprising to witness some breakdowns in the national equity indices.

While writing this I am watching the price of Barclays bank in the UK shooting higher as the traders that were aggressively shorting this last week scramble to cover. At present the stock is up more than 70% - reminiscent of the days when dot com companies could gain as much by announcing that they had formed a Barney alliance.

Those were the days!

TRADE OPPORTUNITIES/SETUPS FOR MONDAY JANUARY 26, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

ADM  Archer Daniels Midland Company  

As I mentioned last week the chart for Archer Daniels Midland (ADM) reveals a bearish flag pattern.



TBT  Ultra Short Lehman 20 Plus ProShares  

TBT is an inverse tracker to the price of long term US Treasuries, so the price chart looks exactly like the yield chart.

Although I remain bearish on the long bonds in the longer term the doji star that appears on the chart below also coincides with the 50 day EMA and could be suggesting that a short term consolidation is beginning. For traders with longer time horizons further pullbacks should be seen as buying opportunities i.e. allowing further profits as yields increase.



GLD  streetTRACKS Gold Trust  

Friday’s action in gold, GLD, took me somewhat by surprise as I expected to see more of a struggle at the more recent overhead resistance level seen on the chart below.

There are further layers of resistance as shown but I have learned that with such an emotional asset it is always better to retreat to the sidelines when the price dynamics become enlivened.

As other commentators will attest there is nothing guaranteed to cause more unfriendly feedback from newsletter readers than going against the grain of the most ardent gold enthusiasts.



JPM  JPMorgan Chase and Co.  

JP Morgan (JPM) has pulled back smartly from the selling seen last Tuesday but as the stock returns to the levels where the selling emerged one could see another attack by short sellers.



SEPR  Sepracor Inc.  

Sepracor (SEPR) would be worth considering on the long side as it approaches $12.50

Daily Form January 22, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JANUARY 22, 2009       06:45 ET

The S&P 500 cash index (^SPX) registered a pattern that was found on many charts after yesterday’s recovery - an inside day reversal. The rebound was sharp and erased a lot of Tuesday’s sell off but significantly the reversal failed to move outside the confines established by the intraday low and high from Tuesday.

This strongly suggests that a lot of trading yesterday was short covering.

In terms of upward targets 850 should bring out some sellers again but there is a case to be made that we could get back to the level indicated on the chart around 870.

I would be looking to trade off the bounce again today but would begin looking at the short side if we venture beyond the 865 level.


A similar pattern to the one noted above is seen on the chart for the Nasdaq 100 index and once again there is room for a continuation of the bounce but I would be looking at the short side again as the bulls will try to make progress towards the 50 day EMA.

The Japanese yen looks vulnerable to corrective action. The shooting star pattern with the intraday pattern more or less at the December high is a very strong bearish signal.

The exchange traded fund FXY is revealing clear evidence of a negative MACD divergence and any strength today in the Japanese currency should be seen as providing better short opportunities.

The chart for the ETF that track the price of spot gold GLD shows stiff overhead resistance and I suspect that we could see another abrupt sell-off in coming sessions.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JANUARY 22, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

ADM  Archer Daniels Midland Company  

The chart for Archer Daniels Midland (ADM) reveals a bearish flag pattern.



DBA  PowerShares DB Agriculture  

An ETF which tracks agricultural commodities, DBA, gained more than three percent yesterday but there is an eight session bearish flag pattern that suggests that this sector still has risks of further pullbacks.



DBB  PowerShares DB Base Metals  

Another commodity focused ETF, DBB, which tracks the prices of base metals could have seen a selling climax yesterday, but any short term rebound should be traded nimbly.



PAAS  Pan American Silver Corp. (USA)  

Pan American Silver (PAAS) has been whipsawing abruptly over the last several sessions and I would suspect that new efforts to head back towards $18 will bring out the short sellers.

Daily Form January 21, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JANUARY 21, 2009       07:04 ET

One of the reasons why Technical Analysis is held in high regard by a lot of traders and market players (certainly not by all of them) is that one should not try to attribute day to day movements in the markets to some specific factor - even if it is as newsworthy as President Obama’s inauguration.

Yesterday the S&P 500, having failed to regain its footing above 850 last week took the path of least resistance which is to re-test the lower boundaries of the trading range that has been in place since the November low.

The suggestion that markets reacted poorly to the new President’s oratory is part of the journalistic need to find some kind of narrative to "make sense" of what can often appear as indecipherable market dynamics.

While on the topic of Mr. Obama’s speech - the one thing that struck this writer, who watched the events in Washington from the UK, was the man’s desire to refrain from the usual politician’s posturing. He knows that the things he has to deal with are immense and complex but rather than displaying false bravado and a show of contrived confidence he seemed very down to earth about the task ahead. He is a man who seems not to subscribe to all of the Obama hype unlike most of the people who, unfortunately, will be surrounding him.

Reviewing the hourly chart for the QQQQ the downward trendline through the intraday lows is pointing to a re-test of the $27 level that was seen on December 5th. We may be in a better position in coming days to answer the obvious next question - Will it hold?


The banking index (^BKX) continues its relentless decline and sentiment towards the ordinary shares of what still can loosely be called the private banking sector is plumbing new depths. Many are now beginning to seriously discuss the possibility of nationalizing the banking system. Two thoughts arise in this regard:

1. Nationalized banks would bring a whole new meaning to financial transparency and if we end up with a model that more closely resembles a set of public utilities the prospects for earnings growth across the whole economy would have to be re-invented.

We may even out the boom/bust cycles and alleviate some of the inherent instability in the credit based system we have become accustomed to, but my suspicion is that the global economy would be a lot more pedestrian than it has been over the last 25 years.

2. Why don’t we move towards a new bi-modal model for banking?

Routine banking businesses should be run like utility companies. Nothing sexy, no corporate jets and no great surprises when they release their earnings statements.

Creative banking should be separated into different entities for those who prefer high risk/possibly high reward investments but the taxpayer should never be exposed to their inevitable misjudgments.

Long term yields on US Treasuries failed to behave in their expected manner in the wake of yesterday’s sell-off in equities. Could that provide a glimmer of hope that the current re-testing of the November low is not going to result in a further break down for equities or does it suggest that the global appetite for an ever more abundant supply of US government securities is diminishing? It may not be a binary choice that is required to answer that question.

More troublesome was the jump in yield on UK gilts which is causing a lot of discomfort for the Bank Of England and the Treasury. Matters were not helped by an interview with Jim Rogers on Bloomberg in which he urged investors to get out of sterling.

Much as one can find Jim Rogers to be a source of financial wisdom I just wanted to repeat a posting that I made on a blog site recently.

Being bullish on commodities and China has not been a particularly good trade recently. But being outspoken, wearing a bow tie and being permanently bearish on the US dollar is one way of ensuring that the TV channels will keep calling for interviews.

One of the more surprising charts to emerge within yesterday’s rather sombre tone was for the exchange traded fund which tracks the price and yield performance of the S&P U.S. Preferred Stock Index, PFF. The chart reveals the extent to which the issue of the potential for bank nationalizations is being taken seriously by institutional holders of bank preferreds.

This would be a good ETF to avoid until the situation becomes clearer.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JANUARY 21, 2009



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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

SGR  The Shaw Group Inc.  

The Shaw Group (SGR) took a big hit yesterday but I would consider the long side in the vicinity of $23.



NVLS  Novellus Systems Inc.  

Novellus Systems (NVLS) broke below key moving averages yesterday but the volume was not compelling enough to suggest a short opportunity. Rather this would be worth keeping on a WatchList for an intraday bounce when the overall market selling pressure eases.



DE  Deere and Company  

Deere (DE) does look compelling on the short side.



JPM  JPMorgan Chase and Co.  

JP Morgan (JPM) has broken decisively below its November low and looks likely to reach a selling climax in coming sessions.



TK  Teekay Shipping Corp.  

Teekay Shipping (TK) has broken below a key trendline on above average volume.