Daily Form August 28, 2009


Detecting Profitable Patterns For Active Traders


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


FRIDAY AUGUST 28, 2009       06:15 ET




As I intimated in my last commentary there were too many carefully laid traps by forex traders and too much enthusiasm from short sellers of S&P 500 futures at the beginning of the session yesterday.
The recovery in equities caused a rather dramatic exiting by the "neo-Armageddon" traders and undoubtedly some trading desks were scrambling to cover bearish currency bets against sterling, the Swiss franc and commodity currencies, which caused a late session plunge in the US dollar index.
The S&P 500 could now shakeout the remaining overly anxious short traders and head up to the 1050 level which several equity strategists, including the omniscient GS team, have been targeting.
I shall be watching as September gets started just how the forex markets begin to align again for the anticipated correction in equities and how much the technicals favor their view prevailing the next time around.
I shall not publish on Monday as it is a bank holiday weekend in the UK to mark the end of a rather abysmal summer (from a weather point of view that is).



Apart from many forex traders who seem to be very skeptical that the rally in equities can continue, there is a growing suggestion from the Treasury market that yield expectations are deviating from the rosier scenario that is built into improving GDP growth prospects which equity cheerleaders are espousing.
At some point participants in the bond market and the equity market will have to look across the valley and become more in synch with each others perceptions, because at present they seem to be seeing a very different landscape on the other side.



The fast recovery of the Australian dollar was amongst the first indicators in yesterday’s session that the S&P 500 selling at the open was too contrived.
The currency has recovered since and the 4 hour chart reveals that a key resistance level could be tested and maybe violated in today’s North American session.



One of the lesser followed currency pairs CHF/JPY also saw a scramble to cover what were clearly bearish bets about US equities and the chart shows that after threatening to break a key trend-line early in yesterday’s US session the subsequent pullback towards the top of the range has been quite abrupt.


Daily Form August 27, 2009


Detecting Profitable Patterns For Active Traders


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


THURSDAY AUGUST 27, 2009       06:27 ET




Apart from some lively action in the EUR/GBP cross rate there is little to keep one’s attention in the European trading session this morning. Germany’s DAX is moving into a highly constricted pattern on the intraday charts with a too obvious drift to the downside, so one has to be wary of thinking that the game is up for the bulls.
Despite the presence of a succession of indecision candlesticks on the chart for US indices - yet again the Nasdaq 100 registered a doji at almost exactly the 50% retracement level - the market seems to be drifting sideways into the last few days of August.
Perhaps the bears are waiting for one more major flourish about green shoots before they pounce.



The Hang Seng Index (HSI) is showing more signs that the 50% retracement level at 21,3000 was a stride too far for the near term, and it would not surprise me to see a re-visit to the 19,000 level in coming sessions.



In the currency markets the wedge pattern on the USD/JPY chart is reinforcing my view that some large players are taking up their positions for a return to the risk aversion agenda.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY AUGUST 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





AAPL  Apple Computer Inc.  

Apple (AAPL) is not a stock that I often comment on since it seems to have almost quasi-religious significance for some, but the current chart pattern is revealing some clear signs of negative divergences.




JPM  JPMorgan Chase and Co.  

JP Morgan (JPM) also has many fans but once again the chart does not look inspiring and the reward/risk profiling would suggest that the long side may not be the preferable position at present.




KBE  SPDR KBW Banks  

KBE, the exchange traded fund which tracks the KBW Banking Index, is suggesting that, without any obvious earnings sizzle to inspire buyers, the banking sector may have already priced in a lot of the more optimistic mood music.



Daily Form August 26, 2009


Detecting Profitable Patterns For Active Traders


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


WEDNESDAY AUGUST 26, 2009       06:51 ET




I commented earlier in the week about the "gravestone doji" candlestick formation seen on the S&P 500 cash index. Not to be outdone a similar pattern was registered on the Nasdaq 100 index yesterday.
One of the news items of the day (so far) that caught my attention was this which appeared in the Lex column of the Financial Times

Since the day Ben Bernanke was appointed the 14th chairman of the Federal Reserve, the US economy has not grown by a single dollar in real terms. The average price of a house has fallen by almost a third. Stocks are down 20 per cent, having halved this year from their peak. Unemployment is approaching a 10th of all Americans seeking work. The target federal funds rate is virtually zero and, in the short term at least, deflation is looming. Hardly an inspiring record for anyone heading an institution whose official objectives are “maximum employment, stable prices and moderate long-term interest rates”.

Another reality about central bankers is that it is impossible to assess how well they have performed their role until many years afterwards. Even then, the counterfactuals can never be known. Former chairman Alan Greenspan reached god-like status during the dot.com boom. Now he is accused of helping to inflate the credit and asset price bubbles that led to the current global financial crisis.


As the article implies central bankers, enjoying their status as the high priests of a financial technocracy - are like the system they watch over, too big to fail.



The sell signal on the GBP/USD to which I alluded last week has played out well and I suspect that sterling is coming down to a level were a bounce is to be expected.
One of the more compelling cross rate trades at the moment is short sterling and long euros but this appears to be slightly overdone at present and a relief rally would coincide with a likely bounce for sterling against the dollar.
Longer term it appears that traders are coming around to the view that the euro could be headed back towards parity with the UK currency.



I have expressed my view that the US dollar index could be headed higher in coming weeks.
The chart below highlights a remarkable descending wedge pattern in which the USD appears to be ready to make a decisive move against the Swiss Franc.
The positive divergences on the chart favor a sharp move upwards. Looking back to the top of the wedge it coincides almost exactly with the beginning of the March recovery and if the greenback is header higher then it suggests that the risk aversion trades may be ready to come back on again.






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





XME  SPDR Metals and Mining ETF  

XME, an ETF which tracks the metals and mining sector, is revealing some negative divergences.




PGF  PowerShares Financial Preferred  

PGF is a sector fund which tracks the price and yield performance of the Wachovia Hybrid & Preferred Securities Financial Index, and the heavy volume sell off late last week appears to be setting the stage for a pullback pattern with subsequent renewed weakness.




BAC  Bank of America Corporation  

The chart for Bank of America (BAC), shows the kind of rolling top pattern which often precedes a correction.




NTAP  Network Appliance Inc.  

Network Appliances (NTAP) looks vulnerable to further selling.



Daily Form August 25, 2009


Detecting Profitable Patterns For Active Traders


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


TUESDAY AUGUST 25, 2009       06:27 ET




The Shanghai Exchange managed to pull out of a rather steep fall during Tuesday’s session as can be seen on the candlestick formation on the daily chart.
The index closed with a 2.6% loss and the most salient technical feature on the chart is the manner in which the 20 day EMA looks set to cross below the 50 day EMA at what is likely to be the possible top to a bearish pullback channel.



The S&P 500 registered a rather poignant candlestick at the end of yesterday’s session which I would almost classify as a gravestone doji. Since that has a rather melodramatic tone to it let’s just say that it is not one of the most bullish candlesticks in the repertoire.



UUP, the exchange traded fund which takes a bullish view on the US dollar index, is displaying a lot of positive divergences and there is clear evidence of accumulation at least on this ETF.



The short term sell signal on the hourly charts for the EUR/USD, discussed here yesterday could have worked out well if short positions had been covered at the $1.4260 level. In today’s session I would be monitoring the $1.4330 level for establishing a new position on the short side.


Daily Form August 24, 2009


Detecting Profitable Patterns For Active Traders


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


MONDAY AUGUST 24, 2009       06:49 ET




The weekly chart below for the KBW Banking Index (BKX) illustrates the extent of the work still to be done by the banking sector to recover its past glory.
While the recovery since March has been very impressive it has to be recalled that it was from almost apocalyptically despairing levels.
The technical pattern on the chart remains constructive but the index would need to climb by almost another twenty percent from current levels to attain the 38% retracement from the 2007 high to the March low.



Somewhat similar comments to those made above regarding the banking sector could be applied to the Philadelphia Housing Index (HGX).
The chart below is a monthly chart which is designed to take in the historic peak for this index in mid 2005 and as can be seen from the fibonacci grid the index would need to move back towards the 144 level for a 38% retracement. This same level also coincides with the 50 month moving average which once again underscores the dramatic fall and the extent of the recovery needed in this vital sector of the US economy.



Along with other Asian markets the Nikkei 225 put in an impressive performance in trading on Monday. A gain of 3.35% was registered bringing the index almost back to the level seen on August 14th.
The index is showing resilience however after the setback seen last week.
Reviewing the longer term weekly chart there can be seen a significant downward gap on the charts just below the 11,000 level which will be the next challenge for this index to face.



Taking a similar longer term view of Germany’s DAX index there is also a highlighted gap from last September/October time frame which will need to be confronted along with the 200 week EMA around the same point on the charts at 5640.
In my commentary last Wednesday morning I suggested that 5150 was a key level from reviewing Tuesday’s intrady hourly chart for the DAX.
This was within eight points of picking the bottom point seen during last week’s trading on this index.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY AUGUST 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





GLD  streetTRACKS Gold Trust  

Gold is moving into a fairly critical zone where another lower high would suggest that momentum for the precious metal may be topping out. The pattern on the weekly chart is however quite intriguing and it is plausible to make the case that there are a series of nested cup and handle patterns which are ultimately bullish.
This week's trading should provide us with some strong clues as to the destiny of gold and the US dollar.




HANS  Hansen Natural Corporation  

Hansen Natural (HANS) has a relatively bullish looking pullback pattern.




AAP  Advance Auto Parts Inc.  

Advanced Auto Parts (AAP) has a clearly developing bear flag pattern.




EUR/USD     

On the hourly charts the EUR/USD provided an Ichimoku sell signal which could see the Eurozone currency move into the green cloud configuration below. This is a short term signal and should only be considered for action in the current session.



Daily Form August 21, 2009


Detecting Profitable Patterns For Active Traders


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


FRIDAY AUGUST 21, 2009       05:14 ET




Asian markets staged a late session recovery with the Hang Seng Index in Hong Kong moving from a more than 300 point loss at one state, with an intraday drop down to the 20,000 level, but a rally to close the session with a less than one percent decline.
Macro asset allocators are continuing to monitor the Asian markets closely as the upward bias which still seems implicit in the micro-structural machinations of the US market could potentially come off the rails if the Chinese government are serious about arresting a bubble in the making and the notion of an anemic global recovery gains more believers.



I would like to sketch two possible scenarios for the Nasdaq 100 (NDX), which would also apply to several other indices:

1. A pullback in coming sessions will take us back towards the recent highs at which point renewed sellers will seize the opportunity to exploit the imminence of a correction, which has been lurking on the chart pattern for some time.
2. A late August rally will take the index to new highs above the 50% retracement level but with a clear negative momentum divergence. This would be in accordance with the current configuration of the MACD chart which has room to show another momentum push but where the chances of a negative divergence would appear to be high.



The Rogers Commodity Index (RCT) moved above the 200 day EMA in mid June, subsequently slipped back beneath it and then made another crossing of this critical level in late July and early August. Notably levels achieved here were at a slightly lower level than those seen in June.
Another attempt to cross the threshold (green line on the chart) now has the added complication that it does appear to be in the context of a bearish flag developing on the chart.



The US Dollar/Japanese yen cross rate would seem to be headed towards a re-test of lower levels seen in July at the 92 level. Highlighted is an Ichimoku crossover but qualifying my conviction in this signal crossover is the fact that the daily cloud configuration is not supporting a sell recommendation. In addition the possibility exists of a positive divergence ahead on the MACD and RSI charts.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY AUGUST 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





PG  The Procter and Gamble Co.  

Procter and Gamble (PG) has an extended pullback pattern and looks vulnerable near to current levels.




HYG  iShares High Yield Corporate Bond  

HYG, a sector fund which tracks high yield debt is also tracing a bear flag pattern.




BIK  SPDR S and P BRIC 40  

Yet another bear flag pattern is evolving on the chart for BIK, an exchange traded fund which tracks the BRIC emerging market sector.




XLY  Consumer Discretionary SPDR  

The consumer discretionary stocks, as tracked by XLY, are also in a pullback pattern which may hit resistance not far above current levels.



Daily Form August 19, 2009


Detecting Profitable Patterns For Active Traders


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


WEDNESDAY AUGUST 19, 2009       04:39 ET




Once again the lead chart for today has to be the Shanghai Index (SSEC) which appears to be having another attack of vertigo after Tuesday’s pause. The index dropped sharply into the close in Asian trading today and closed with another 4% plus decline.
In Monday’s column I noted that the 200 day EMA might provide some support but looking at this chart the old phrase about not wanting to catch a falling knife comes to mind.
Needless to say this chart will not be positive for sentiment elsewhere today and is already having a sharp negative impact on European equities and supporting the safe haven play on the US dollar.



After yesterday’s inside day on the S&P 500 and with the deteriorating mood about emerging markets, de-coupling and so on which are already surfacing in commentary from the usual suspects, the 950 level looks more feasible as the intermediate term target which was discussed here earlier in the week.



Following the technical sell signal on the daily Ichimoku chart for the GBP/USD currency pair discussed here yesterday a similar sell signal has been registered on the chart for the EUR/USD pair.
Again these are not short term indicators and the intraday movements will continue to be worth trading in either direction but the longer term outlook seems to be favouring the US dollar against the key European cross rates.



The intraday chart for Germany’s DAX shows the negative reactions to the Shanghai markets late plunge and the index is flirting with the 5150 level which marks possible support.






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





ACWI  iShares MSCI ACWI Index  

The investment vehicle which tracks the iShares MSCI ACWI Index is revealing a rather classical momentum divergence and the indicators are suggesting that a correction is now evolving which could bring the index back towards a re-testing of the support level illustrated on the chart.




UUP  PowerShares DB US Dollar Index Bullish  

The bullish view of the US dollar index, as facilitated by the sector fund UUP still seems to me to be validating the basing pattern diagnosis which I provided here some time ago.



Daily Form August 18, 2009


Detecting Profitable Patterns For Active Traders


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


TUESDAY AUGUST 18, 2009       06:15 ET




After the series of candlesticks indicating decision avoidance as the Nasdaq 100 (NDX) approached the 50% retracement level the pattern resolved itself yesterday with a significant gap move downwards.
Based on the formations seen on the chart a retreat to the 1500 level on this indeed would seem like a realistic intermediate term target.



The Russell 2000 (RUT) reveals a breakdown from a wedge pattern which suggests that a trend inflection has been reached. It may be that the index will move sideways as did the general market in May following similar patterns seen on other charts but in the intermediate term a more prolonged correction seems to be the more likely scenario. A retreat to the 530 area where the 50 day EMA coincides with other support/resistance levels visible on the chart may well be the first target for the bears.



GBP/USD, the currency pair of sterling against the US dollar provided the sell signal on the daily Ichimoku chart in yesterday’s session. It is not uncommon however to see a pullback and respite rally before the downward move gathers momentum.
The intermediate term target would be another test of the $1.60 level.



The VIX posted one of its largest green candlesticks for some time, and is now poised to break above a descending trend-line which extends back to the March recovery.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY AUGUST 18, 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





ERTS  Electronic Arts Inc.  

One reader recently contacted me and suggested that the macro focus of the commentary was commendable but that more specific stock recommendations would be useful. I have been less focused on individual equities recently because I have found the macro picture so fascinating and believe that there are some forces at work in the US equities arena which make me somewhat cautious regarding a number of traditional TA indicators.
Having said that I shall just draw attention to one of the specific suggestions made here last week.


Electronic Arts (ERTS) sold off on substantial volume last week and could hit resistance at the $21 price where two moving averages have converged.





DBB  PowerShares DB Base Metals  

Another specific recommendation made in my commentary last Wednesday could have been profitable


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





HYG  iShares High Yield Corporate Bond  

The following recommendation was made in last Tuesday's column and could have provided generous profits.


HYG, a sector fund which tracks high yield debt could correct in the medium term to the level of support indicated on the chart.





BIK  SPDR S and P BRIC 40  

The following also appeared in last Tuesday's column


BIK, an exchange traded funds which tracks the BRIC emerging market sector, has been revealing for some negative divergences and increasingly there is case which could validate a double topping pattern. Having said that the volumes are thin at present and with many looking to buy dips in all kinds of exotic markets there could be a further wave of ebullience so I suspect that there will be a better time to position oneself for what could be a really nasty sell-off in emerging markets when the larger cap US indices do decide to take their well earned rest.





XRT  SPDR Retail ETF  

XRT, the SPDR version of a sector fund which tracks retail, seems headed towards $29.