Daily Form June 26, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JUNE 26, 2009       05:53 ET

The relief was palpable in US equities yesterday when the US Treasury concluded the week’s sale of $104 billion worth of Treasury notes. The last in the series auctioned yesterday - a 7 year note - came in with a much higher bid to cover ratio than average and this allayed fears, at least for the time being, that there is a diminution in appetite for US public debt.

Just to show that market participants have very different views on the direction of the Treasury market here are two comments from analysts reported this morning by Bloomberg

“The future auction sizes may be large but there’s also huge demand,” said Yasutoshi Nagai, chief economist in Tokyo at Daiwa Securities SMBC Co., part of Japan’s second-largest brokerage. “I’m bullish on the Treasury market and the trend is for yields to go down.”

Ten-year yields may fall to as low as 3.20 percent during the next two months, Nagai said.

But just to show how varied opinions are the next analyst has diametrically opposed views;

“I wouldn’t recommend U.S. dollar assets: Treasuries or stocks,” said Masayuki Senda, who helps manage $2.6 billion of assets as head of portfolio management in Tokyo at Fortis Investments Trust Management. “The U.S. budget deficit has increased currency risk for investors.” Ten-year yields may rise to 4.2 percent by October, he said.

As I have discussed in Long/Short Market Dynamics (a link to where this can be purchased at Amazon.com is provided above) the key to market liquidity is exemplified in such adversarial views. So for the time being President Obama, who recently intimated that the size of the public debt could keep him awake at night, can sleep more easily.

The S&P 500 (SPX) staged a decent rally of more than 2% and erased all of the gains of the week so far allowing the index to open Friday’s session almost exactly where it finished last Friday. Volume across the board was very subdued and in harmony with my comments from last Monday the last few days of the quarter are commonly periods when cosmetic adjustments are made to portfolios.

We shall have to wait and see what a new quarter brings next week. I shall however not be publishing again until Tuesday July 7th.


The CBOE Volatility Index (VIX) closed at its lowest level since last September.

There is an interesting article about seasonality in the VIX here and in a nutshell the findings, in what is an interesting analysis, are that a trough is to be expected in the VIX in June with a notable pick up, on a seasonal basis, over the next three months.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JUNE 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

GDX  Market Vectors Gold Miners ETF  

GDX, providing exposure to the gold mining stocks via an exchange traded fund, continued its rally as anticipated here yesterday but as with all charts that I have scanned this morning the volume levels are not indicating that there was a great deal of conviction behind the price action.



XBI  S and P Biotech ETF  

XBI, a biotech fund peeked above its 200 day EMA yesterday and could be on the verge of a breakaway from a cup and handle formation, but this interpretation also has to be tempered by very light volume.



KBE  SPDR KBW Banks  

KBE, the exchange traded fund which tracks the KBW Banking Index, has an almost horizontal pattern extending back six weeks, and the volume yesterday was less than half of the daily average.

The close is still within the green cloud and the near term direction should be considered to be tentative

until the uncertainty in direction is resolved one way or the other.



RTH  Retail HOLDRS  

RTH, which tracks the retail sector, staged a sharp reversal yesterday as it has been making its way towards the lower boundaries of the green cloud pattern on the Ichimoku chart.

The move lacked the significance it would have had if the volume had shown more conviction.


Daily Form June 25, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JUNE 25, 2009       07:12 ET

Several readers have expressed a desire to know more about Ichimoku charts and are intrigued, in particular, by the manner in which prices observed at the outlines to the cloud formations coincide with pivotal and strategic price levels discernible from other forms of technical analysis.

The more I have been working with this charting technique the more comfortable I am becoming with some of its idiosyncrasies and while there are still many aspects to the technique that I will want to explore with readers, I think the elegance and power is already becoming evident.

Yesterday’s action saw a rather erratic response to the FOMC statement which may have more implications for the bond market in coming sessions than for stocks.

The Dow Jones Industrials (DJI) was unable to finish with a positive close and came to rest at exactly the top of the green cloud in the chart below.


Earlier this week I discussed the FTSE which had attained the 4280 level last Thursday and once again the index closed yesterday’s session at exactly this level.

The weekly Ichimoku chart below reveals how this is a critical level and illustrates the usefulness of the longer time frame applications of the charting technique.

The DAX in Germany has dropped back by more than 1.5% in Thursday trading as I am putting this column together. One could apply a similar interpretation to the weekly Ichimoku chart for the German index as seen on the UK’s FTSE.

TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JUNE 25, 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

GDX  Market Vectors Gold Miners ETF  

GDX, provides exposure to the gold mining stocks via an exchange traded fund, rallied from a key level and could make further progress - but for now this is an opportunistic trade in my opinion.

I am still of the view that the long term prospects for gold and the mining stocks especially, have the potential to stage a sharp rally but the fear level has to rise a little more for the background conditions to be supportive.



EEM  iShares MSCI Emerging Markets Index  

EEM, the sector fund which tracks the MSCI Emerging Markets Index, could be in the process of forming a bearish flag which could take us through the quarter end.



XLF  Financial Select Sector SPDR  

XLF, one of several exchange traded funds which tracks the financial services sector, has drifted sideways since mid-May on declining volume which is hardly supportive of the thesis that accumulation is taking place.



RSX  Major Vectors Russia ETF  

RSX, a geographical sector fund which allows exposure to primary Russian equities, is also revealing evidence of an emerging bear flag.


Daily Form June 24, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JUNE 24, 2009       05:41 ET

The markets will be in a holding pattern again today as they await the FOMC statement and secondarily the results of the Treasury auction.

Despite Monday’s broad based sell-off there was little in the way of a relief rally from equities in yesterday’s session as traders sit on the sidelines waiting to unravel what the Fed’s thinking is in relation to further quantitative easing and even the slight possibility of a hint that short term rates will need to be nudged higher later in the year. Few expect there to be a focus on the need for any tightening of monetary policy but the FX market and those guaging the appetite of global central banks for Treasury paper may have other thoughts on the matter.

The FOMC is in a box, as I have alluded to many times in recent months, and to express matters as simply as possible - If the statement from the FOMC sounds too tough on the need to keep short term rates under review so as to alleviate poor Treasury auction anxieties, stocks will slump, if it doesn’t sound as though the Fed is at least thinking about an exit strategy from QE, bonds and the dollar may well slump.

The weekly Ichimoku chart for the S&P 500 rather intriguingly reveals that the three month rally in the index stalled almost exactly at the entry point to the pink cloud.


The longer term application of the Ichimoku charting technique to yields on Treasuries also provides some interesting perspective on the chart which tracks the yield on five year notes. For the first time since the late summer of 2003 the yield on this pivotal part of the yield curve is moving above the pink cloud suggesting that further increases are to be expected.

The other key piece of the puzzle for today’s trading will be the FX market where the dollar appears to be coming under increasing pressure, adding another dimension of concern to the difficulties facing Chairman Bernanke.

The euro was energized by comments yesterday from European Central Bank council member Axel Weber who claimed that the bank has used up its room to cut interest rates and there’s no need to expand its stimulus measures. The thinking goes that this may inhibit further tentative steps into quantitative easing by the ECB and is giving a boost to the euro.

Once again the weekly Ichimoku chart reveals a bullish bias for the currency, although from other indicators I would be inclined to believe that the closing high of $1.44 seen in North American trading on December 17, 2008 will be quite a key resistance level.

Daily Form June 23, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JUNE 23, 2009       07:04 ET

Yesterday’s comment that the S&P 500 "is looking less sure of itself than it has done for some time, and the possibility of a sudden drop is increasing" proved to be more timely than I perhaps realized. The wedge formation which I have also been propounding now looks to be firmly broken.

The major casualties in yesterday’s sell off were commodity related stocks, industrials, shippers, transportation and some of the emerging markets. It raises again the questions that were being asked more than a year ago about the de-coupling thesis.

Although more and more analysts and investors are coming to the view that the US and other developed economies could be in for a hard slog with a recovery, when it does come, being anemic at best, the bulls have been inspired by the notion that the BRIC countries are sufficiently robust to make it without the dynamism of the more advanced economies. The thinking goes that they will be able to withstand the decline in the previously voracious appetite of US consumers by tapping into their domestic markets for alternative sources of consumer demand.

Without doubt, this debate will continue to rage on, but from time to time the over-enthusiasm of some traders in pushing commodities and the re-inflation trade into mini-bubbles will result in the kinds of collapses that some of the decoupling plays experienced yesterday (see below for some examples - FCX,CENX,MON, DD,EXM,etc.)

In general terms this underlines the potential for serious vacuums to be found below a lot of stocks that have benefitted recently from the high frequency rotation and arbitrage strategies being implemented by a lot of Wall Street firms and hedge funds. While these very sophisticated algorithmic strategies can provide the appearance that all is well and that the markets are recovering, if there is not a critical mass of fund managers and other vested interest constituents wanting to preserve the gains of the last three months, the algorithms are abruptly faced with evaporating liquidity except on iterating through a series of declining bids.

Questions are now being asked about how large this correction will turn out to be and whether it is now a relatively one way market downwards.

I would not be surprised to see the S&P 500 drop to a retest of the 875 level where support could be found from fund managers looking to put some beaten up stocks in their portfolios for the end of quarter. As I indicated yesterday my intuition is that July and August could prove rather troublesome for global equities in general and there is always the possibility that a government auction will bring forth a shock realization that Treasuries, gilts, bunds etc may find it increasingly hard to find proud new owners other than via their own central bank purchases.


Reflecting the fact that the green shoots scenario is losing its luster the biggest drop amongst the broad domestic indices for the US was seen in the Dow Jones Transportation Index (DJT) which dropped by 4.7 percent in yesterday’s sell-off.

Reviewing the chart for May and June the declining trendline through the highs and the inability of this index to reach back to its January high was a technical divergence that added weight to the view that the market had been drifting sideways more in hope than founded upon a more realistic economic outlook.

The Transports look set to test the 3000 level (as annotated on the chart) and could easily be looking at having to retest support at several layers beneath that.

The Nasdaq 100 index (NDX) has been the relative out-performer during recent weeks and even after yesterday’s sharp decline the index remains above both of its 50 and 200 day EMA’s.

The crossover recently which brought the 50 day moving average above the 200 day moving average was considered a significant technical achievement.

The 1400 level on the index should offer firm support in the next few sessions. Longer term it would be another technical warning if the moving averages were to crossover in the opposite direction.

The FTSE index in the UK could be headed towards a re-test of the 4170 level in coming sessions.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JUNE 23, 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

DD  E.I. DuPont de Nemours  

Over the last week I have featured a number of commodity related and industrial stocks that seemed to be vulnerable to the correction which is now under way.

Last week I suggested that Dupont (DD) was revealing a bearish flag formation and I have indicated by an arrow where one could have instigated a short sale in the following session.



FCX  Freeport-McMoRan Copper and Gold Inc.  

As a reminder of another warning about the nature of the run up in commodity related stocks there was this warning about Freeport McMorran (FCX) in another recent commentary.

The $60-65 region, which marks yesterday’s close, coincides with some potential resistance from previous support resistance levels and the 200 week EMA. There may be further gains ahead but the risk/reward ratio is becoming less attractive for this play.



MON  Monsanto Company  

In a similar vein I noted last week that Monsanto (MON) appeared vulnerable to renewed weakness near current levels.

After yesterday’s sell-off the stock has broken below the green cloud on the Ichimoku chart and within the orthodox interpretation of this charting technique this would validate the notion that this stock is now within a new bearish phase. Indeed it would be rather remarkable if this stock was not to re-test the March low.



CPHD  Cepheid  

Cepheid (CPHD) managed to avoid a big plunge in yesterday’s session but the technical pattern for the stock seems patently weak.

Daily Form June 22, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY JUNE 22, 2009       07:14 ET

Futures are pointing to a lower open for US stocks on Monday and European markets are down about 1.5% as this is being written.

In early May I advanced the view that there was a rising wedge pattern on the S&P 500 and believed that a break out of that pattern would be a bearish development for the broad market. I also proposed that the 945 level on the index would be a major hurdle. I have turned out to be approximately right on the 945 hurdle as the area within a few points of this target level has proven to be a fairly stiff barrier for the index.

On the rising wedge pattern in one sense I was wrong since the break below which is indicated on the chart has not (yet) brought out the bears and the index has essentially moved sideways for several sessions.

There is a pullback pattern emerging on the index and there could well be a rally which takes us back to test the highs from early June allowing fund managers to engage in some window dressing for the end of the quarter and mid-year point.

However the index is looking less sure of itself than it has done for some time, and the possibility of a sudden drop is increasing. I would identify the early July time frame as potentially troubling and would suggest that monitoring the VIX levels in coming sessions could provide some useful clues as to near term direction.


The Hang Seng index (HSI) slumped in afternoon trading in Hong Kong on Monday. As can be seen from the chart below the intraday high has left a long upper shadow or tail to today’s candlestick.

The dotted green line at the top of the chart traces the 38% retracement level for the peak in the market seen in October 2007 and the base seen one year later.

Highlighted in yellow is the price behavior at this key fibonacci retracement level and the swift drop which took place after the index peeked above 19,000 indicates that there is likely to be more consolidation in the current price zone with a potential for a move back to the 17,000 level where the 50 day EMA is to be found.

Using the Ichimoku charting technique the Natural Gas index (XNG) could find a support level for a bounce as it approaches the top of the green cloud and an area of previous chart resistance and support.

TRADE OPPORTUNITIES/SETUPS FOR MONDAY JUNE 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

XLE  SPDR Energy Sector  

XLE, which tracks the energy sector, has returned to a possible area of chart support which coincides with the top of the green cloud on the Ichimomku chart below.



MW  Men's Wearhouse  

Men’s Warehouse (MW) has pulled back from the strong upward spike on heavy volume from nine sessions ago. This will be on my watch list this week for the long side.



OSG  Overseas Shipholding Group Inc.  

Overseas Shipholding Group (OSG) has a bull flag formation and the pullback could be close to completion.



NTRI  Nutrisystem Inc  

Nutrisystem (NTRI) has a bearish flag formation and another attempt to rally back towards the overhead moving averages could provide a good entry point on the short side.



AXL  American Axle and Manufacturing Holdings Inc.  

American Axle (AXL) has two adjacent pullback patterns following price surges. The first which followed the very extended green candlestick on heavy volume in early May extended for much of May but which gave way to further accumulation and eventually produced the second strong price action in mid June.

A second pullback is now under way could lead to another show of support for the stock and for intraday traders the focus should be on monitoring the 30 and 60 minute charts for evidence of a bull flag pattern which reflects the larger time frame formation.

Daily Form June 19, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
FRIDAY JUNE 19, 2009       05:26 ET

Today’s column will focus largely on Ichimoku charts for several sectors and indices which are at critical levels. There are, as with all techniques in TA, layers of complexity associated with the interpretation for this Japanese inspired charting methodology. I want to be simple at this point and focus on the notion that when prices enter the clouds - either pink or green - this is indicative of trend transition and that when price exits from a cloud this is validation of a significant directional change.

The Housing Index (HGX) is now on the critical level at the bottom of the green cloud and if there is to be a rescue effort mounted by Johnny come lately bulls for the sector now is the time it should arrive.

Other technical analysis tools suggest that this is looking unlikely.


XBI provides a contrasting picture from an Ichimoku perspective and as is often the case there are other technically supportive factors for a diagnosis.

At the beginning of June prices failed to penetrate through the top of the pink cloud from below and then retreated back into the cloud. Over the last few sessions, as the level of the top of the cloud has been declining, it is now clear that price is breaking away from the cloud.

Lending further support to an interpretation that a medium term bullish trend is now emerging, is the discernible cup and handle formation, which has also been annotated on the chart. This pattern is also often a precursor to bullish breakaway price action.

The chart for the FTSE 100 reveals another useful feature of the Ichimoku charting technique which, once again, conforms well with some other more traditional technical analysis indicators.

The UK benchmark index settled Thursday’s session at exactly 4280. Without wanting to appear too clairvoyant this was precisely the level which I suggested would need to be tested in my column published Tuesday morning.

The revealing aspect of the chart below shows that the top of the green cloud, which according to standard Ichimoku interpretation should provide an initial support, is also at 4280.

Not entirely un-coincidental is the fact that the 50 day EMA for the FTSE is also at 4280!

Across many asset classes, the last few days have seen a probing of major support levels, and longer term direction will remain ambiguous until the outcome of this testing is fully resolved.

The S&P Retail Index (RLX) is now in the midst of a cloud after failing to find support at the top of the green cloud at the 326 level which also marked the critical level in terms of the violation of the uptrend line from the March low.

According to the Ichimoku analysis the sector could retreat to the 285 level (bottom of the green cloud) before there is a definitive validation of a new downtrend pattern.

In terms of playing this interpretation one could take the view that this level will be tested and that from the perspective of playing the short side the 285/90 level would be a valid profit target and the 328 level (i.e. just above the top of the cloud) would be a suitable stop loss level.

TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JUNE 19, 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

XHB  Homebuilders Select Sector SPDR  

XHB, an exchange traded fund which tracks the homebuilding sector, and which I discussed here earlier this week faces a key test at $11.12 (i.e. the bottom of the green cloud) and a break below would validate a new bearish trend interpretation.



XOP  SPDR Oil and Gas Exploration  

XOP, is an ETF for oil exploration sector, and in accordance with the interpretations being offered so far the traditional TA analysis would suggest that key support has been broken. However yesterday’s close brought the price down to a test of potential support at the top of the green cloud.

Once again any further movement into the cloud should be monitored closely in coming sessions.



KBE  SPDR KBW Banks  

The exchange traded fund the KBW Banking Index (KBE) also has similar characteristics to the chart for XOP.



XPH  SPDR Pharmaceuticals ETF  

A surge in volume emerged yesterday, in conjunction with a technically bullish wedge pattern, on the chart for XPH which is an exchange traded fund tracking the pharmaceuticals.

Daily Form June 17, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY JUNE 17, 2009       06:32 ET

The US equity market is now moving into a zone where it needs to be rescued. In essence the charts below, many of which have been featured in this column over the last two weeks, are now poised at critical levels. With two days of selling behind us already this week the most obvious conclusion to be drawn from the patterns below is that the sideways drift since mid May, and the declining volume during the rolling top phase, now appears to be giving way as sellers are stepping up to the plate.

In some ways the charts look too obviously in favor of the bears and there may be a short term relief rally from an oversold condition.

One chart in particular needs careful monitoring in coming sessions which is the VIX - the CBOE Volatility Index - which is now in the process of violating a downtrend line in place since March. This indicator is inversely correlated with the S&P 500 and suggests that the recent complacency and cheerfulness was getting way overdone.


Featured last Thursday in my commentary were concerns about the housing sector. The Philadelphia Housing Index (HGX) is now revealing a breakdown pattern which does not portend well for the financial services sector which still has not resolved the toxic asset issues.

XAU, the Gold and Silver index has also reached a critical support level. If there is renewed pressure on equities in general, rather than some technical trading limits being tested, this index could well retreat along with the rest of the market as happened during the rout last fall.

TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JUNE 17, 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

XHB  Homebuilders Select Sector SPDR  

XHB, an exchange traded fund which tracks the homebuilding sector, and which I discussed here last week in the context of a break below the green cloud of the Ichimoku chart, also reveals a drop below all three moving averages and a violation of trendline support which echoes that seen for HGX.



EEM  iShares MSCI Emerging Markets Index  

EEM, the sector fund which tracks the MSCI Emerging Markets Index, has broken down from the pullback pattern where it failed to reach back to the late May high and could easily retreat back to the 200 day EMA in the intermediate term.

As always the views expressed in this column should not be taken as a specific recommendation for trades to be implemented in the upcoming session.



XLY  Consumer Discretionary SPDR  

Here again are my comments from last week:

The consumer discretionary stocks, as tracked by XLY, are revealing some negative MACD divergences and also noteworthy is the pick up in volume associated with the inability to break above the high from early May.

Notably on this chart the fund closed yesterday’ session at a potential support level where the 50 and 200 day EMA’s have converged.



VXZ  iPath SP 500 VIX Mid-Term Futures ETN  

In conjunction with the chart for the VIX which begins today’s commentary there is an ETF which allows one to profit from an uptick in volatility of the S&P 500 - VXZ.



CMF  iShares S and P California Municipal Bond  

Again comments from last week are worth repeating.

CMF,is a fairly specialized exchange traded fund which tracks municipal debt for the state of California. After appearing to be unruffled by that state’s current calamitous budget situation, the last two days have seen selling emerge in this fund and the path looks clear for further downside pressure.



RTH  Retail HOLDRS  

One of the featured charts from last Thursday was XRT, which is one of the exchange traded funds which tracks the US retail sector and I expressed concerns about the technical formation.

A related fund is RTH and the chart below is clearly displaying the MACD divergences and trendline violation which reinforces the view that these sectors need to be rescued soon as the pattern should be quite disconcerting to those who have been nibbling away on the long side in the last few weeks.



IYC  iShares Dow Jones US Consumer Services  

The chart for IYC, an exchange traded fund which track the Dow Jones US Consumer services sector, is revealing a very similar formation to that seen on the chart above for the retailing sector.