Daily Form January 6, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JANUARY 6, 2009       07:07 ET

Yesterday’s trading was very technically driven within a confined range as the volume began to kick in following the extended holiday period. The resultant tiny doji star formation adds further emphasis to the overall range compression that is evident on the chart.

There was a slight sell side bias to the session but there was also the sense that the bulls were not about to turn and run after three consecutive positive sessions.

The constriction of the Bollinger bands suggests that a large directional move is on the horizon and the real question is whether traders will want to show their hands before this Friday’s employment data or wait until the numbers are released. Anything less than a very bad number has, to use the folklore, already been "priced in".

The technical conditions are pointing to higher prices ahead but there is a sense that nearly everyone is expecting an upside surprise which would of course mean that it is no longer a surprise.


The Nikkei 225 (^N225) moved up marginally in trading in Tokyo on Tuesday and as with the chart above there is a compression characteristic which is surely the precursor to a decisive directional move.

A challenge to the October 15th intraday high just above 9600 seems to be a valid target in coming sessions.

The sell-off in long term Treasuries continued yesterday with the largest jump in yields being seen at the far end of the yield spectrum. The 30 year bond now has surpassed the three percent yield threshold again and as the chart suggests a 3.3% yield would simply return us to the 50 day EMA.

The more acceptance there is that we have seen the turn in equities, the greater the willingness to take on more speculative asset classes, the more selling one would expect to see across the Treasury complex.

One benign consequence of this will be an improvement in the ability of banks to engage in the more traditional ways for them to make money - playing a steeper yield curve - without having to resort to the risks that beset more sophisticated financial engineering.

The chart for the exchange traded fund TBT mirrors the chart above as it is an inverse fund based upon price for long term Treasuries.

A lot of money is now betting that the unprecedented downward moves in yields in December was overdone and, while this would seem to be a sound judgment in the intermediate term, timing in the short term, as always, can be hazardous to your P&L.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JANUARY 6, 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.
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HYG  iShares High Yield Corporate Bond  

Yesterday I suggested that HYG, which tracks the high yield corporate bond market could have further upside towards 80 which would represent the 62% retracement level as well as the 200 day EMA... and that this would represent a best case target in the near term. I would certainly be looking to remove long positions and stalking the short side in coming sessions.



LQD  iShares iBoxx Invest Grade Corp Bond  

The investment grade corporate bond sector fund LQD has rallied back to its early September levels, even slightly above those levels, and could be ready to digest its gains while some trading profits are booked.



CTAS  Cintas Corporation  

The daily chart for Cintas (CTAS) reveals a rather well formed bearish flag pattern.



GE  General Electric Company  

The chart for General Electric (GE) is one of the least healthy looking amongst the major Dow Jones components and yesterday there was a rejection at the 50 day EMA.



PANL  Universal Display Corp.  

Universal Display (PANL) dropped almost six percent yesterday but may be expected to see a short term bounce at the intersection of two key moving averages.

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