Daily Form July 31, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


FRIDAY JULY 31, 2009       06:49 ET




It is starting to feel frothy again. US equities came hurtling out of the gate on the open yesterday and it looked as though 1000 might be achieved in the first hour of trading after market traders saw more rosy news on the global recovery story. The S&P Cash index peaked at about 997 and then the market drifted in anticipation of the results from the 7 year note auction.
Results of the auction were certainly a lot healthier than those seen in Wednesday’s five year auction but the devil is in the details and some still have their concerns about the refunding still to come.
After the auction the market tried to rally again but seemed to lack the dynamism of the first ten minutes of the session.
There is a lot of anticipation of the GDP numbers to be released today and we could be in for some more fun at the beginning of the session. The 1000 level has been a target of mine for some time and I would expect some congestion to arise in this vicinity. Are we moving towards a blow off top? - I think so.
But it would not surprise me if there were some more high-wire drama first.
By nature I am an optimist and even though the Armageddon merchants looked to be in the ascendancy over the last few months the evidence now is clearly pointing to the fact that having come to the abyss and gone beyond there are many in the markets who think it’s back to business as usual.
The IMF has recently published some sobering news for the realists however and the BBC News website has captured the "highlights" (if that is an apt description).

The global credit crunch has cost governments more than $10 trillion, the International Monetary Fund (IMF) says.

The IMF says that rich countries have provided $9.2tn in government support for the financial sector, while emerging economies spent $1.6 tn.

Around $1.9tn represents up-front expenditure, while the rest is made up of guarantees and loans.

Governments are likely to recover most of these sums when the world economy recovers, but big deficits will stay.

The financial bail-out costs include:

* Capital injections: $1.1tn
* Purchase of assets: $1.9tn
* Guarantees: $4.6tn
* Liquidity provision: $2.5tn

The IMF estimates - prepared ahead of the G20 summit of world leaders in Pittsburgh in September - also show how much long-term damage the crisis is doing to public finances.

It estimates that by 2014, government debt will reach 239% of GDP in Japan, 132% in Italy, 112% in the US, and 99.7% in the UK.

Proportionately, however, the rise in the UK is the biggest - with debt more than doubling from 44% in 2007.

Rating agencies have recently warned that a UK debt of 100% of GDP would force them to consider downgrading the credit rating of UK government bonds.

This could make it more costly for the government to raise money.

The IMF says that it is important for governments to show a credible path for reducing deficits in the long-run, although it urges them to continue the fiscal stimulus in the short-term.




Of all the major indices yesterday the one which registered the most striking shooting star candlestick was that for the Nasdaq 100 index (NDX).
On the chart below I have indicated the 50% retracement level from the multi-year highest close at 2238.98 on the last trading day of October 2007 and the lowest close from November 20, 2007 at 1035. The exact level for the fib 50 retracement is at 1633 which was more or less tagged as the intraday high yesterday.
We could steam through this without hesitation but even the most ardent believers of the V shaped recovery may be getting just a little breathless. Things may be a little clearer by the end of today’s session.
The next target for the bulls would be the 61.8% fib level which is at 1774. It is unlikely that we could get there today - but perhaps that’s the number that the algorithms have been told to target!



I shall repeat my call from yesterday that the US Dollar index looks to be basing and could be preparing for a decisive move upwards.
Yesterday’s inside day on the UUP chart, as well as an Ichimoku crossover and the momentum dynamics, suggest that the long side is the right place to be on this sector fund.



The Russell 2000 (RUT) index went into the early July doldrums more rapidly than the larger cap indices but now is mounting an heroic charge in the vanguard of the current advance.
For a bullish continuation play the target on the chart below for the equivalent 50% retracement move to that discussed for the Nasdaq 100 is 600.
It is worth reminding ourselves that the Russell 2000 has a higher beta than the S&P 500 or even the Nasdaq 100 which means it will outperform when markets get racy and underperform when they slump.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JULY 31, 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





XLI  Industrial Select Sector SPDR  

I would not advocate shorting this current rally as there are some unusual dynamics at work at present and machines may not suffer from vertigo in the same way that human traders might begin to contemplate after the recent parabolic rise.
Amongst those sector funds that I would have on the radar for eventual short plays would be XLI, which is a sector fund for the industrials.




XHB  Homebuilders Select Sector SPDR  

XHB, an exchange traded fund which tracks the homebuilding sector, also appears to have discounted the housing recovery story such as it is. Just how much more good news is there to keep moving this higher?



Daily Form July 30, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


THURSDAY JULY 30, 2009       06:41 ET




I was travelling yesterday and unable to prepare my commentary otherwise I would have drawn attention to the rather large drop in Shanghai during Wednesday’s session. Readers may recall that I had featured the chart for the Shanghai exchange in last Friday’s column which is available here and indicated that the index had reached the 38% retracement zone from the historic high to last year’s low and where a pause would be expected.
The China bulls will keep stressing all of the positives for the emerging markets and especially China and India but there are indications that their governments are beginning to have concerns that bubble-mania is not just a problem that the "advanced" western economies are prone to.
The one fly in the ointment for the global recovery story would be for evidence of the need for some supply dampening in the fast growing Asian economies. It is becoming more apparent that there is over-capacity in so many areas of the global economy that while US and European economies attempt to re-group from the debt overhang it cannot make sense, at the margin, to keep investing in new capacity in certain sectors of the Chinese economy.



The results of the Treasury auctions so far this week have been disappointing and some observers of the US public debt market are sensing that the massive supply which still needs to find buyers as the year progresses could cause some disruptions along the way.
Bloomberg has the following story from London action in Treasuries on Thursday morning in anticipation of the auction for 7 year notes in today’s US session

Treasuries fell, with the yield on the seven-year note approaching the highest level in more than a month before a $28 billion sale of the securities, as stock gains damped demand for the relative safety of government debt.

Ten- and 30-year debt led declines as the MSCI World Index rose for the first time in three days. Today’s auction is the last of four debt offerings this week, totaling $115 billion. Sales in the past two days drew higher yields than expected, signaling demand is waning for the record amount of debt the U.S. is selling this year.

“This week’s auctions have been pretty disappointing,” said Peter Mueller, a fixed-income strategist at Commerzbank AG in Frankfurt. “Bonds will take their direction from what is going on in the equity markets in the coming days. Risk sentiment is still all-important.”

“For the second successive session, the Treasury market was knocked violently out of its stride by a weak auction, with low indirect bids,” said John Wraith, head of sterling-rate product development at RBC Capital Markets in London.




Earlier this week I pointed to the difficulties which the Euro has been having in its efforts to break above the $1.43 level in an effort to reach back to $1.4330 which was registered in early June. As the chart reveals the successive attempts have all failed in the last several sessions and the currency sold off rather abruptly in yesterday’s session.
The target level of $1.4035 - which is the fibonacci 50% retracement of the June high at $1.4330 and the swing low level at $1.3740 proved to be an excellent point to capture profit following the breakdown. The currency has managed to find support at the $1.40 level and a move back to the pink cloud on the Ichimoku chart below, and this will provide another opportunity to be stalking the sell side of the EUR/USD pair.



Commodities are extremely sensitive to the China dynamo story and yesterday’s action in the Rogers Commodity Index (RCT) demonstrates how fragile sentiment is at current recovery levels.
One senses that are a lot of nervous fund managers that would not take much persuading that the reflation trade is over-cooked and that it is better to lighten up on some of the equity related commodity plays before everyone starts looking for the exits.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JULY 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





UUP  PowerShares DB US Dollar Index Bullish  

UUP, the ETF which allows one to profit from recovery of the US dollar against a basket of currencies, is still in a basing pattern but if, as I am expecting, the risk aversion factor moves back on to the agenda in coming weeks the reward/risk on this index appears to favor the long side.
My comment on Tuesday regarding FXA which tracks the Australian dollar against the USD proved to be timely.




BIK  SPDR S and P BRIC 40  

BIK, an exchange traded funds which tracks the BRIC emerging market sector, has some negative divergences in what could validate a double topping pattern.




SHY  iShares Lehman 1-3 Year Treasury Bond  

As previously observed the short end of the Treasury curve is seeing a move up in yields following a rather week auction in two year notes earlier this week. The chart below is an ETF which tracks the prices of 1-3 Year Treasuries (SHY), and shows that prices on this sector of the yield spectrum are coming under pressure with the price dropping below the 50 day EMA in yesterday's session.



Daily Form July 28, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


TUESDAY JULY 28, 2009       05:45 ET




SPY is within two percent of the 100 level which would in essence equate to the 1000 level on the S&P 500 cash index. It has moved up in almost parabolic fashion since early July, and once again yesterday did so on sub-par volume.
The sell off in early July has eliminated the obvious signs of negative divergences in MACD and MFI that I would be looking for to question the continuation of this rally.
Rather I am focusing more on the forex and fixed income market at present and will be staying away from any plays on the equity indices until it becomes clearer whether those anxious to hit the sell button can prevail before the 1000 level is hit.



The Hang Seng Index (HSI) is one of the most lively of the easily accessible global indices and, in my opinion is within a couple of days of reaching the 21,300 milestone - equivalent to a 50% retracement of the historic high from October 2007 and the swing low from a year later.



The Euro has made repeated, and so far unsuccessful, attempts to break above the $1.43 level, and traders in Europe on Tuesday morning are once again pushing the currency back for another attempt.
My contention is that this level needs to break in order to validate a move above the 1000 level on the S&P 500, if and when it comes.



This morning in European trading Germany’s DAX index reveals coiling and constriction of the Bollinger bands on the hourly chart. Along with other key European indices, a pattern is emerging where they to seem to spend most of each morning trading in a holding pattern waiting for directional cues from US data.
The narrowing of the volatility bands suggests that a decisive directional move is imminent.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JULY 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





AGG  iShares Lehman Aggregate Bond ETF  

AGG, which tracks the iShares Lehman Aggregate Bond Index, is, unlike most long sector fund charts, starting to display some indications of an approaching correction. The fund SHY which is another fund tracking short term Treasuries has some similar signs.
The fixed income market will be vital to monitor over the coming days as the questions about the Fed's exit strategy and the ability to keep funding these massive auctions is still causing unease.
The one element that cannot be forgotten in considering the debt/GDP ratio is the ratio between the expected growth rate of national income (and therefore tax revenues) on the one hand versus the interest rate that will need to be paid out to the capital markets to adequately fund multi-trillion dollar deficits.
This constitutes the wall of worry which, according to present form, seems to be energizing the equity bulls.




FXA  Currency Shares Australian Dollar  

The Australian dollar has been benefiting as a commodity currency in the overall thematic of growing risk appetite and renewed optimism about an upturn in global activity.
This comes despite evidence that while global trade is no longer declining at the rates seen last year - indeed it would be hard to sustain falling off a cliff - there is precious little evidence of any vigour in trading and shipping data.
The exchange traded fund FXA reveals that the recovery in the Aussie currency has a significant gap from last fall to confront and the risk/reward on the long side for the commodity currencies in general is beginning to look less attractive in the near term.



Daily Form July 27, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


MONDAY JULY 27, 2009       06:38 ET




The S&P 500 continues on its upward trajectory and the indicators from overseas action on Monday in Asia and Europe plus a firm bid on US futures suggests that the market could continue moving ever closer towards the 1000 target.
Currencies are also reaching up towards some key levels with the euro poised to challenge the $1.4330 level from early in June.
While the momentum is still favorable for a prolongation of the rally my concerns are related to the unusual contribution that High Frequency Trading (HFT) may be making to the current technical characteristics of the market. I have expressed this concern this morning in regard to a well written piece at SeekingAlpha about some misunderstandings about HFT and whether the practice amounts to a market which is rigged.

Even if one was to grant all that you claim about the innocence of those using HFT - one of the real issues you have not addressed is the illusion of liquidity that is created by algorithmic activity.

The appearance of high volume and narrow spreads may belie the fact that the underlying "quality" of liquidity (not something that algorithms can really measure) is poor.


For the record I think that the writer of the piece fails to address some areas where HFT focused trading houses - and there are obvious names to fit this bill - are benefiting from some unfair advantages but the larger risks lie in the misperceptions that are being created regarding the technical wellbeing of the equity market.

The real concern would be that - let us say - at the 1000 level a lot of long only fund managers want to start liquidating positions and the market is faced with a lot of sell orders at the same time - will the algorithms be able to absorb this kind of lopsided and illiquid market environment?



In Friday’s column I enumerated the huge amount of supply that has to be addressed this week in Treasury auctions and in particular the yield on the five year note will be worth monitoring.
Friday’s action could not have registered a more appropriate candlestick formation ahead of the challenges ahead than the tiny doji star which is evident on the chart below.
The exchange traded fund TBT is the vehicle to use if you believe that yields across the longer end of the yield curve are poised to move higher.



The intraday chart of the Euro/USD shows that at the time of writing the eurozone currency could be preparing to test the $1.4330 level of resistance that has been discussed previously.
The forex market appears to be lacking some of its normal liquidity as we head into August when many Europeans are thinking of heading to the beach and there is a possible that the Euro will make sharp move up that could trigger some buy stops.
It would be worth holding back to make any diagnosis on a potential breakout until the conclusion of North American trading today.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY JULY 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





NTRS  Northern Trust Corporation  

Northern Trust (NTRS) managed to find support above all three moving averages in Friday's low volume session and an attractive reward/risk ratio presents itself with a possible intermediate term target of $64.



Daily Form July 24, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


FRIDAY JULY 24, 2009       06:34 ET




As anticipated in my comments in Monday’s newsletter (available at the archive of Daily Form commentaries), the break above 960 on the S&P 500 is now bringing into play two factors that could perpetuate the surge to 1000 and beyond.
1. Skeptical fund managers are now under the gun to deploy cash and move out of "safe haven assets".
2. Short covering continues and it is notable that some of the recent big movers are stocks that have been out of favor and most troubled during the recent "difficulties" in the financial system.

Goldman Sachs says 1060 and I would not doubt their ability to help steer us there. Meanwhile the markets will face having to digest almost a quarter of a trillion dollars worth of US government paper being issued over the next week, as outlined in this piece at Seeking Alpha.

70 day CMBs, $30 billion (Friday), 13 week Bills, $32 billion (July 27th),26 week Bills, $31 billion (July 27th),52 week Bills, $27 billion (July 28th),2 year Notes, $42 billion (July 28th),5 year Notes, $39 billion (July 29th),7 year Notes, $28 billion (July 30th),19 year, 6 month TIPS (reopened), $6 billion (July 27th).

And the only efforts involved for the Treasury in solicitation of these vast sums is posting a series of PDF files on its website.
This really is 21st century alchemy - let’s hope the game of chicken continues to work.



Here for those who missed it is the weekly chart for the Nasdaq 100 which reveals the pace of movement in this index. I commented yesterday that 1610 could be a significant barrier thinking that it might take a few sessions to get there. It can be seen that the 1610 level corresponds to the 200 week EMA and the 50 retracement of major swing high and low boundaries.
We might be there today just proving how energized the bulls are at present even if they are bulls of the algorithmic variety!



One of the reasons why I write this daily column is to track and monitor my own performance in trading and to create a chronicle for my own purposes of the way that my own trading style is developing. I have already alluded to the archive of commentaries which contains the last two years of commentaries (I have in fact been writing a daily column for about four years) and readers may have noted that I am becoming more convinced that the Ichimoku techniques can be very beneficial.
The technique and the signals which it gives are more complex than most and I am still a student of this technique. In particular I am finding that it can be helpful in intraday trading of forex.
Below is a pattern that has developed on Friday morning in the trading of sterling against the dollar which echoes the pattern describe here earlier this week.

The Ichimoku sell signal is marked by the arrow, the negative RSI/price divergence is noted by arrows on the chart and the particular entry point is the spinning top candlestick to the right hand side of the chart.
The exit point to the trade is the bottom of the green cloud.



The Shanghai market (SSEC) continues its almost uninterrupted ascent and for reference sake the long term weekly chart shows that the index is approaching the 38% re-tracement level from the historic high seen in October 2007 above 6000 and the low one year later below 1800.
At some point this index will need to take a breather.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY JULY 24, 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





TBT  Ultra Short Lehman 20 Plus ProShares  

The exchange traded fund, TBT, moves inversely and with twice leverage to the price of 20 plus years Treasuries.
Based not only the enormous refunding needs above but also the technical condition of the fund with price breaking above the 200 day EMA this fund is worthy of consideration again.




MCD  McDonald's Corporation  

McDonalds (MCD) disappointed yesterday and the selling brought the stock to the bottom of the green cloud on the chart below.
It would not be surprising to see a pullback pattern but technically this now appears to be one of the more vulnerable of the Dow 30 stocks which is rather incongruent with the general cheerfulness that the recovery process is gaining traction.
As others have said it is always prudent to trade what you see on the charts and not what you hear about from the pundits.



Daily Form July 23, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


THURSDAY JULY 23, 2009       03:02 ET




The weekly chart of the Nasdaq 100 index shows a coincidence occurring at the 1610 level between the 200 week EMA and the 50% retracement move from the October 2007 high and the low seen in October 2008 which was almost echoed in March.
Overall the resilience of equities continues to suggest that the bulls are prevailing against the sceptics but there are still some key hurdles to be confronted by several laggard indices.
The big Nasdaq stocks have clearly been the place to be during the most recently rally and the index has moved by more than 10% since July 13th.



The Dow Jones Industrials has pierced beyond the 200 day EMA and now faces the challenge of superseding its highest close in 2009 registered in early January.



The FTSE index reveals a similar configuration to that seen on the DJIA chart with a move through the 200 day EMA and the next target being the early January 2009 high.



The Hang Seng Index surged forward again in Thursday’s trading after Wednesday’s setback and as previously discussed the 50% retracement of key swing levels suggests that a 213000 level is attainable on this index in the foreseeable future.
A lot of macro funds that have been expanding their commitments in the Asian markets are being handsomely rewarded at present and my hunch is that there are signs that the Hong Kong market is getting a little overdone, as it is prone to do, so the target just mentioned could be considered as a possible exit point for some who are sitting on some very substantial gains.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY JULY 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





HUM  Humana Inc.  

I commented in Monday's session that Humana (HUM) could meet resistance after the pullback channel moved back to moving average resistance and the chart suggests than entry opportunity on the short side could be near at hand.




WYNN  Wynn Resorts Limited  

WYNN Resorts is approaching possible resistance from the 200 day EMA which is just above yesterday's close and in this barrier in early May proved impenetrable.



Daily Form July 21, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


TUESDAY JULY 21, 2009       07:12 ET




Back in the spring I was using the fibonacci grid on the S&P 500 cash index showing the 1000 level as the upper band and the 666 level as the low boundary in order to situate some price targets for the recovery process that began in March. I had chosen the 1000 level then as it represented a key resistance level back in early November 2008 when the index tried but failed to pull out of its October plunge and managed a strong reversal with one close above 1000 which subsequently failed to hold.
Two key retracement levels which were identified under that analysis were the 795 level (38%) and the 875 level (62%).
Technically oriented trading desks (and aren’t they all nowadays) decided to re-test the 875 level from above a couple of weeks ago and, with that test successfully behind it and the index now poised to take out the early January high, the 1000 level is starting to look like the next plausible target in coming sessions.



Sterling has come under selling pressure in Asian and European trading today and is moving back towards its weakest recent levels in its narrow range against the euro as well as falling below the $1.64 level against the US dollar this morning.
The following analysis shows the combination of an Ichimoku and momentum analysis of the GBPUSD exchange rate using a 30 minute time frame.
The sell signal is marked on the right hand side of the chart which was prompted by several technical signals.
1. The first was the Tenkan Sen/Kijun Sen Cross in which the 9 period line pierced the 26 period line from above with the appropriate cloud positioning.
2. The RSI chart is revealing a clear negative divergence
3. The MACD chart (which can sometimes be useful in the shorter time frames for forex trading) also is registering a negative divergence.
Also indicated on the left hand chart would be almost the converse of the above (except not really evident on the MACD segment) where a buy signal for sterling was given during trading on July 17th.
In both cases the trade could have been entered with an attractive reward/risk ratio. This morning’s sell signal yielded more than 120 pips within three hours, with less than a 50 pip risk on a straightforwardly positioned stop loss level.



The US Dollar index is approaching a level where some support (perhaps just temporary) should be expected as illustrated on the UUP chart below. The key cross rates to be watching for a potential turn in the fortunes of the dollar today will be the USDCHF level which is also touching the most recent lows as this is being written as well as the EURUSD which is still having difficulty breaking above the $1.43 level.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JULY 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm



Daily Form July 20, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


MONDAY JULY 20, 2009       06:42 ET




The tiny doji star formation on the S&P 500 Cash index (SPX) sits just above the 200 day EMA and the index is within two percent of its recent intraday high of 956.23 witnessed on June 11th.
Firm prices in overseas markets, in particular Hong Kong (see below), as well as the continuing rally in many key currencies with resulting pressure on the dollar are underlining the now widely recognized fact that risk appetite for global asset allocators is increasing.
This week I shall be looking at the possibility of a break above the recent highs for the S&P 500 to follow on from those seen on both the Nasdaq Composite and the Nasdaq 100 last week.
The possibility of a move up towards (and even beyond) the 1000 level is now beginning to haunt those watching from the sidelines and could spark an abrupt rally if the 960 level is taken out on the S&P 500
It would be preferable for the euro to confirm the breakout by heading back for a test of the $1.47 level but that still seems less clear on the patterns evolving on the intraday forex charts.
For the moment I shall be avoiding the short side in both equities and the euro but am conscious that the trailblazing task ahead for the bulls could easily see sudden setbacks.



The Hang Seng Index in Hong Kong surged by 3.7% in Monday’s session and is now firmly above the 38% retracement level from the historic high and the low seen last October.
The 50% retracement level around 21,300 is now activated for this speculative market.



The euro has broken above the $1.42 level in trading in Asia and Europe which is a short term bullish indicator.
A key target to be monitored for today’s session would be $1.4330 which was touched on June 3rd.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY JULY 20, 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





DELL  Dell Inc.  

Dell (DELL) could be vulnerable to further selling as the pullback is taking place on diminishing volume.




OSIP  OSI Pharmaceuticals Inc.  

The pattern on the chart for OSIP qualifies as a bullish flag formation.




HUM  Humana Inc.  

Humana (HUM) could meet resistance at the level indicated by the arrow on the chart.



Daily Form July 16, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


THURSDAY JULY 16, 2009       05:47 ET




Equity markets once again demonstrated that short squeeze rallies, where a large number of traders had convinced themselves that the market was about to plummet and had to rush to cover, can be viciously abrupt and result in the kind of powerful trend day that was registered on the S&P 500 chart yesterday.

We have rallied from the test of key pivot levels around 875 and back to within a whisker of the 200 day EMA in just three sessions.... No wonder a company like Goldman Sachs, which has the inside edge in this arena of highly technical trading, can produce such spectacular results.
Questions about the sustainability of the rally and the technical patterns seem to be eclipsed by the fact that GS has a target of 1050 or thereabouts on the S&P 500 and, increasingly it seems that GS gets exactly what it wants.
I shall leave the reader to decide whether, in the fullness of time, this is healthy for a sound capital allocation mechanism - the primary rationale for markets - or just for clever meta-market timing activities.



Despite a three percent rally in the S&P 500 the VIX actually rose in yesterday’s session. This is not a common occurrence as these comments from Bloomberg suggest

The Chicago Board Options Exchange Volatility Index, as the VIX is known, gained 3.5 percent to 25.89. The S&P 500 added 3 percent, giving it a 6.1 percent gain since July 10. They have both advanced 25 times since the subprime crisis began in August 2007, according to data compiled by Bloomberg. The next day, the S&P 500 fell 18 times for an average loss of 1.6 percent.

“That is remarkable,” Randy Frederick, head of trading and derivatives at Charles Schwab in Austin, Texas, said of the tandem move by the S&P 500 and VIX today. “The VIX is expecting something here, either a pull back this afternoon or tomorrow.”




Inter-market strategies seem to be flourishing with a kind of predictability which makes some uneasy. This is related to the phenomenon of increasing correlations across different asset classes where the common denominator is the prevalence or absence of risk aversion.
When US equities surge so too do many of the key foreign currencies. The chart of the Euro reveals that the triangular pattern is counter-cyclical to the movements in broad equity markets. The euro tagged the top of the triangle yesterday and is pulling back in Thursday’s session as this is being written.
If the S&P is set to break to the upside one should be looking for forex traders to echo that breakout by pushing the euro back towards 1.47 which was seen last December.
Personally I still remain skeptical about that.



The technology sector, in the wake of Intel’s earnings and outlook, propelled the markets higher yesterday and QQQQ had reasonably healthy volume behind the move.
The Nasdaq 100 proxy has gone from a test of the 200 day EMA and back to the recent highs in just three sessions.
As previously commented, trading in today’s markets is really suited to those with a bi-polar temperament and the daily dynamics of half full/half empty should forever banish the efficient market’s hypothesis (EMH) to the scrap heap of pseudo-scientific mythology.


Daily Form July 15, 2009


Detecting Profitable Patterns For Active Traders


Successful trading without having to be right about the underlying market direction


WEDNESDAY JULY 15, 2009       02:53 ET




The Russell 2000 (RUT) rallied for a second day but once again on light volume. There is a declining wedge pattern developing as the index attempts to regain the territory above the 200 day EMA.



The VIX has surprised many (myself included) by returning to its multi-month lows at just 25. The Ichimoku chart highlights the fact that this index has been able to avoid any contact with the pink cloud since April.
Once options expiration is behind us it will be worth monitoring whether the index can continue its decline below what might possibly be a double bottom pattern.



More often than not I comment on the short side of the long term Treasury curve which can be traded via the TBT sector fund. The long version for this sector (without leverage) TLT is revealing a mini bull flag formation.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY JULY 15, 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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





DBB  PowerShares DB Base Metals  

DBB, a sector fund which tracks base metals, looks technically vulnerable.




XLB  SPDR Materials Select Sector  

I shall return to my comment from Monday's commentary


XLB, an exchange traded fund which tracks early cyclicals is evolving a second bearish flag formation and could be in the process of forming a pattern which I called the downward staircase in Long/Short Market Dynamics .