Daily Form September 22, 2009


Detecting Profitable Patterns For Active Traders


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


TUESDAY SEPTEMBER 22, 2009       06:43 ET





The Australian dollar performed exactly as anticipated in yesterday's column by bouncing off the green cloud as can be seen on the chart below. Another key test is now about to be faced as the currency attempts to move back above the trend-line through the lows which had previously acted as support since the beginning of September and which could now potentially pose a resistance threshold.
The RSI values on the 4 hour chart should be monitored during trading today for negative divergences and there is also the possibility that a failure to take on the 0.8775 level seen on September 17th could signal a possible double top formation, at least in the near term

Daily Form September 21, 2009


Detecting Profitable Patterns For Active Traders


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


MONDAY SEPTEMBER 21, 2009       06:43 ET




The focus of attention in coming sessions should be on the FX market and the fact that many currency pairs are testing potential support in their recent run-up against the US dollar.
Certainly there is some evidence that the overall forex market may be too short the dollar, and that with the possibility at least that the period of super easy monetary policy may be moving towards its grand finale, there could be quite a scramble to cover short dollar positions if some current levels do not hold.
In Friday’s commentary I touched on some of these levels and while this is being written the euro is now poised just above a significant recent support level at $1.4640.



From time to time I look to review point and figure charts for a sense of the price action without the time dimension. For those unfamiliar with the technique there are several good sources that will reveal the basics about the technique and which can be discovered by using your preferred search engine.
The chart below shows the KBW Banking Index (BKX) and I have focused on the recent recovery and established some fibonacci extensions based on a major impulse move from the base.
Interestingly the current level is at 1.618 times this movement and the 2.618 ratio would take the index to the 68 area approximately.
In the vicinity of the the current area there is some overhead resistance which can be seen by plotting a horizontal line through the red zeroes at the base of several columns.



The chart for yields on the five year Treasury note clearly reveal a fundamental support level at 2.2% and the pattern sketched out indicates a triangular pattern which may be preparing for an upward breakaway as yields move higher.



In Friday’s column and on CNBC’s European Closing Bell that afternoon I discussed the technical condition of the Shanghai Exchange (SSEC).
The market made a recovery in to the close of trading during Monday’s session after dropping more than 3% intraday and penetrating below the 50 day EMA (red line).
As I have already cautioned, this index, in my opinion, has the potential to surprise on the downside and I shall be watching the way that the current pattern evolves this week.
It is also worth pointing out that the market will be closed for one week from October 1st for local holiday celebrations.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 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





gbpusd    

Sterling/dollar is also sitting at the key level of $1.6140, which I discussed on Friday, as this is being written. One would expect a near term bounce.
However if the bounce lacks conviction and we head down towards the more pivotal $1.60 level many of those who are presently long sterling could start throwing in the towel with an increasing likelihood that this key support level may not hold.




audusd    

Another currency pair to which I have alluded last week, the AUD/USD, is also positioned at a level where some kind of short term bounce is to be expected. The overall tone of the market suggests that the Aussie currency may be on the back foot during the course of this week.




dax    

Germany's DAX index has slumped in European trading on Monday morning but as with the Australian currency the chart suggests that a bounce off the green cloud seems likely, that is providing that the tide has not turned against the long equities and short dollar brigade.




RSH  RadioShack Corporation  

Radio Shack (RSH) has a bullish flag formation.




CREE  Cree Inc.  

Cree (CREE) has a bear flag formation with quite notable down volume characteristics associated with the down-thrust which created the inverted flag pole.



Daily Form September 18, 2009


Detecting Profitable Patterns For Active Traders


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


FRIDAY SEPTEMBER 18, 2009       06:47 ET




The Shanghai market dropped back by more than 3% in Asian trading and the daily chart is revealing an interesting pattern as far as wave counts are concerned.
I am not a convinced follower of any particular school relating to waves - their duration, magnitude and how to count them in a non-ambiguous fashion - but do look for some of the more obvious patterns on major charts, especially those of global equity indices.
The Shanghai market would appear to be in the second wave of a three wave corrective pattern and I have illustrated how things might progress from here.
If this analysis is correct the real test for the market will be to monitor closely how the pattern evolves at the end of the third minor wave of the second major wave.



The FTSE index is now at a fairly pivotal level in relation to the weekly chart patterns with chart resistance clearly visible starting at the 5200 region all the way up to 5470.
Once again to employ some wave terminology - we may be at the end of wave 3 from the March low (keeping things as simple as possible and not even attempting to place this in accordance with any major Elliott longer time frame wave structure).
The magnitude of the third wave at this point is exactly 2.618 times the second or corrective wave which itself represented a 38% retracement of the first impulse wave off the March low.
If this diagnosis is correct then the achievement of a key fibonacci extension plus the chart resistance indicated and also the coincidence of the 200 week EMA, would pose a reasonable probability that the index is now entering a zone where a fourth and corrective wave could be imminent.



The daily chart for GBP/USD shows that essentially this currency pair have been range bound for several months with a $1.60 lower boundary and a $1.66 (approximate) upper boundary. There was the break above the boundary in early August but this was rejected at the strategic $1.70 level and a more recent attempt to break through again met resistance at $1.67.
The trendlines indicate that the price action in Asian trading overnight saw the uptrend broken and there would be a presumption that sterling is header back towards the lower boundary.
If however there was a turnaround before the $1.6140 area this would set up two higher lows on the re-test and would strengthen the case that sterling will make another attempt to break through the $1.66 level and would have stronger dynamics to revisit and possibly take out the $1.70 resistance level.
The alternative scenario, which would be far more bearish for sterling would be to see a revisit the $1.60 level, and not to find keen buying support.
My suspicion is that the time frame on these two scenarios is imminent and one should have a clearer picture on this pair during next week’s trading.



The longer term weekly chart for the EUR/USD shows that the Eurozone currency is at a cross roads in terms of chart resistance and fibonacci retracement.
In Asian trading on Friday a trendline through the lows on the 4 hour charts was violated but during European trading this morning the currency is rallying back to regain a position above the $1.47 level.
The question that is lingering in terms of wave patterns since the beginning of September is whether we are about to enter a corrective wave 4 after an extended wave three which brought us up to the $1.48 level or whether we may already have completed wave five.
If the currency fails to close above $1.4640 by the US close tonight the probability would favor the second scenario which would suggest that a more serious correction could begin to unfold next week.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 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





C  Citigroup Inc.  

Citigroup (C) has two mini bear flag patterns as well as an Ichimoku sell signal on the daily chart.




POT  Potash Corp. of Saskatchewan Inc  

Potash (POT) has a fairly well defined cup and handle pattern and it would be worth monitoring the $102 level for a possible breakaway event.



Daily Form September 17, 2009


Detecting Profitable Patterns For Active Traders


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


THURSDAY SEPTEMBER 17, 2009       06:43 ET




In yesterday’s trading the UK’s FTSE index moved above the 50% retracement swing level and is currently trading around 5160 which, as highlighted on the chart below coincides almost exactly with the 200 week EMA.
The annotations on the chart show two distinct phases to the recovery since March with the first illustrating quite convincingly the initial basing followed by the pullback into a cup and handle formation with subsequent breakaway. Since then the slant of the line through the lows suggests that there has been aggressive buying which is indicative of a market where institutions and even retail investors are buying the dips anxiously so as not to get left behind.
There is little room for any margin of error in this kind of scenario and one senses that while 5240 may be a feasible target in the near term this market is going to want to take a rest and when it does there could be a swift retreat back towards the 5000 level as a first stop.
It is feasible that some time this year we could see a re-testing of the 4650 region which is marked as the top of the cup and handle pattern and which would represent about a ten percent correction from current levels.



It is becoming increasingly likely that the 1120 level on the S&P 500 is being targeted now by the bulls which would represent the tracing back of one half of the swing move since the October 07 high and the 09 low.
The last four or five percent may be quite volatile, and of course we may not got there before a correction sets in.
This reminds me of the adage attributed to Lord Rothschild that one of his secrets to investment success was that he always sold too early.



The Hang Seng Index (HSI) is blazing a trail and reinforces the view that the animal spirits are becoming more enlivened as we head towards the fourth quarter.
Interestingly the chart pattern has very similar characteristics to the pattern revealed on the chart for the FTSE and one suspects that we are either on the verge of another major break away to the upside or, should there be a violation of the steep uptrend line through recent lows, we could see some fear re-enter the market (which would actually be a more sober development and suggest that the current bullish sentiment does not go into a super mania phase).



I have to confess that I have been overly optimistic about a potential recovery of the US dollar.
I feel that a correction for equities is imminent which would also see a rebound in the dollar and there are positive divergences on longer time frame charts suggesting that the sell-off of the US currency is losing momentum as we continue to make new 2009 lows in certain pairs.
For reference sake I have included the weekly chart for the sector fund, UUP, which tracks the greenback against a basket of currencies.
The lows seen in March/April now seem to be on the horizon and in the meantime I would suggest that the key currency pairs to watch for indications that the selling of the dollar may be reaching a crescendo are the AUD/USD and the USD/CHF.
One of the factors that is making a general play on a dollar index problematic is the out of sync performance of the Japanese yen which now seems to be following its own agenda.
Normally I would recommend monitoring the AUD/JPY for signs that there might be some unwinding of carry trade positions but the somewhat erratic strengthening of the yen against the dollar is making the charts on this pair too noisy to be reliable at present.


Daily Form September 15, 2009


Detecting Profitable Patterns For Active Traders


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


TUESDAY SEPTEMBER 15, 2009       06:46 ET




Trading in Europe on Tuesday morning is revealing a neutral to mildly negative bias for equities and, albeit in a mild form, a continuing relief in the recent selling pressure on the US dollar.
Sentiment in London has been hit by the governor of the Bank of England’s suggestion that the UK’s path to a "business as usual" recovery is far from assured and this was wrapped up in the hint that rates paid to commercial banks for deposits with the B of E will have to be adjusted downwards. All of which is designed to enable the British to do what they do best - which is to borrow more money.
Meanwhile in the US a lot of attention will be paid to the retail sales report which will be released in a couple of hours and which could enliven the early going after the US equity markets open for business.
There is an expectation that the report will be upbeat as it will include the "benefits" from the sales of clunkers and traders may use this as an excuse to squeeze the stubborn shorts that still refuse to believe that the stock market should be at current levels.
The action later in the session should be more indicative of the near term direction and there is the prospect of more shenanigans before the end of the week when the September futures and options move into expiration.
The Russell 2000 (RUT) finished exactly at the 600 level yesterday and, this is even more remarkable in that this level also coincides with the 50% retracement of the historic high on the chart and the March low.



As previously mentioned Mervyn King, the governor of the B of E, seems to be one of the few central bankers that is willing to deliver bad news and his present warnings about the pace of a likely UK recovery have hit sterling.
The bottom of the green cloud chart on the 4 hour chart is a probable interim level of support around $1.6350.
Readers may recall that from time to time I like to quote from Ambrose Evans Pritchard of the Daily Telegraph who is one of the more apocalyptic commentators on the financial system.
The following comes from a column which can be accessed in full here

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."


The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.
"The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."

Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."




The chart below carries on from the theme from yesterday’s commentary that there is evidence that the US dollar has, at least in the near term, pulled out of its recent nose dive.
The 4 hour chart for the USD/CHF shows that the basing pattern is building on the positive momentum divergences.



The Australian dollar is looking increasingly vulnerable against the US currency.
An intermediate term target would be a return to the 0.8450 level.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY SEPTEMBER 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





XLF  Financial Select Sector SPDR  

XLF, the sector fund for the financials, is revealing some rather obvious divergences. Amongst the many patterns which I noted from scanning the daily charts this morning there were several question marks over banks and financials.




FITB  Fifth Third Bancorp  

Fifth Third Bancorp,FITB, is just one of the financials which seems to be suspended in a no man's land which is not in accordance with the technical conditions displayed on the chart.




PHM  Pulte Homes Inc.  

A head and shoulders pattern appears to be evolving on the chart for Pulte Homes (PHM).



Daily Form September 14, 2009


Detecting Profitable Patterns For Active Traders


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


MONDAY SEPTEMBER 14, 2009       07:06 ET




The Nikkei 225 continued the sell-off from Friday with another 2.3% drop in Asian trading today.
This is being attributed to the weakness of the US dollar against the yen, but as the chart suggests there are negative pullback channels emerging and the pattern would become decidedly bearish if the Nikkei was to fail to hold above the 200 day EMA around 9800.
As suggested in Friday’s commentary the US currency appears to be gaining some ground against most other currencies and the growing strength of the yen does lend support to the risk aversion scenario which may become a pre-occupation of macro traders again.



The chart below is an hourly intraday chart for the DAX index in Germany and as with many charts at the moment there are some very strong negative divergences where price development is following a very different path to the underlying relative strength and momentum oscillators.
Equity indices have been showing a knack recently of "floating" away from the underlying technical dynamics which are pointing towards corrective action, but based on the premise that there are a lot of constituencies that want to sustain the pleasant mood music of increasing asset values this anomaly could persist for some time. Reviewing the charts from 2007 it really was quite remarkable how the October rally was able to be mounted despite the clear evidence of negative divergences during the late summer and early fall of that year.



The chart below continues with the theme from Friday’s commentary that there is evidence that the US dollar is gaining some traction across many currency pairs.
The 4 hour chart for the USD/CHF shows that the basing pattern is being maintained.



One of the more interesting plays in FX is long yen and short the Australian dollar.
The pair came down to the 77.50 area which I suggested as a target last week and should we see a rally back towards the green cloud this would provide another good opportunity to look at the short side (i.e. selling the Aussie for yen) with an eventual target of the early September lows around 76.50.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 14, 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





SHY  iShares Lehman 1-3 Year Treasury Bond  

SHY,an exchange traded fund which reflects the Lehman index of 1-3 year Treasury bonds, registered a shooting star pattern and a potential double top in Friday's trading. There is also a negative MACD divergence.




TBT  Ultra Short Lehman 20 Plus ProShares  

TBT, an exchange traded fund for the longer end of the Treasury spectrum which also tracks yields (i.e. moves inversely to price) registered a tiny hammer candlestick on substantial volume in Friday's trading.




XLU  Utilities Select Sector SPDR  

XLU, which tracks the utilities sector, has triggered a signal crossover on the daily Ichimoku chart.
For those wanting to play the short side for the utilities sector with leverage, the fund SDP, also has a positive divergence.




STR  Questar Corp.  

I shall be watching Questar Corp (STR) as there are suggestions that a decisive move above $36 could be a precursor to a breakaway pattern.




NLY  Annaly Capital Management Inc.  

Annaly Capital Management (NLY) is an example of a stock that is floating and has become disconnected from the underlying deterioration in the technical dynamics.



Daily Form September 11, 2009


Detecting Profitable Patterns For Active Traders


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


FRIDAY SEPTEMBER 11, 2009       07:33 ET




There are some divergences developing on key FX charts which are pointing to a possible let-up in the selling of the US dollar.
Below is a 30 minute Ichimoku chart of the USD/CHF and there are suggestions on both the RSI and lower oscillator chart that the successive lower levels are not commensurate with the momentum indicators. In other words the selling is taking place with less conviction and those carrying short positions against the dollar may be quick to start covering if there is a respite in the market’s current pre-occupation with tempting more investors into risk assets.



The EUR/USD currency pair (where the USD is the quote currency unlike the above chart where the Swiss Franc is the quote currency) shows the Euro entering a range constriction zone - as evidenced by the narrowing of the Bollinger bands - and where the RSI levels have reached a plateau.
Moving forward on the Ichimoku projection, the cross rate is going to encounter the green cloud within the next few sessions and the dynamics are suggesting that the probability of a corrective pattern are increasing.



Notwithstanding my general view that the European currencies are at fairly pivotal levels against the dollar the exception (which maybe proves the rule!) is the USD/JPY pair.
There is a growing sense that the lows seen for the greenback against the yen may now be on the radar with a subsequent strengthening of the Japanese currency. This is also acting as a dampener to the Nikkei and would, based on the notion that many still regard the yen as the primary safe haven currency (especially for Japanese investors), add further plausibility to the notion that there will be some reining back of the "animal spirits" in coming sessions.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 11, 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





YRCW  YRC Worldwide Inc.  

The following was my comment in yesterday's column about YRCW


The chart for YRCW, is also a follow up on a recent recommendation for the long side.
After following through with a definitive rise from the pink cloud following an Ichimoku signal crossover there is a level of chart resistance which needs to be confronted and if broken would exemplify the requirements of a CANSLIM breakout pattern.

Even though I had recommended a long position earlier in the week there would still have been an ideal opportunity to enter the market on yesterday morning's open and obtain a 19% return for the session.




LAMR  Lamar Advertising Company  

Lamar Advertising (LAMR) has both a bearish flag formation and an Ichimoku daily sell signal.




IYR  iShares Dow Jones US Real Estate  

As with LAMR, the sector fund which track US real estate, IYR, has a bearish pullback pattern (especially evident from the volume charts) and also registered an Ichimoku based sell signal on yesterday's close.




COW  iPath DJ AIG Livestock ETN  

The wonderfully named sector fund, COW, which tracks the livestock sector, appears to be entering a recovery process and even if the immediate outlook is uncertain the chart patterns suggest that, in the medium term, this could make further upside progress.




RKH  Regional Bank HOLDRS  

RKH, an exchange traded fund which track regional banks in the US, also has a bearish pullback pattern with an Ichimoku negative crossover following yesterday's trading.



Daily Form September 10, 2009


Detecting Profitable Patterns For Active Traders


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


THURSDAY SEPTEMBER 10, 2009       07:01 ET




Exuberance for risk trades and dollar bashing are being tempered somewhat in European trading this morning - probably just a pause to refresh?
The chart below is a current 30 minute view of the S&P 500 futures and shows that there are signs of negative divergences and an Ichimoku sell signal about to be triggered.
Support should be expected at the bottom of the green cloud but that may or may not have come and gone by the time trading begins in New York in a couple of hours.
In general terms the mood remains buoyant with plenty of talk about the end of recession to keep those skeptics on the sidelines worried. As such they are likely to jump in on pullbacks and assist the process of programs which are also designed to squeeze impatient short sellers who remain steadfast in calling a top.
For the time being the dynamics are leading to some fairly quick reversals but the reward/risk ratio is, from my perspective, looking less interesting on the long side.



The Hang Seng Index (HSI) almost touched the 21,300 level referred to in this commentary frequently. The reversal which occurred later in the session has caused a shooting star to be formed at a significant juncture for the index.



One of my favorite cross rates to monitor at present is the AUD/JPY which is also showing signs of sinking through support levels on the hourly chart as this is being written.
This currency pair is one of the traditional "carry trade" pairs although as recently discussed the US dollar is increasingly becoming the short leg in carry pairs.
As I have annotated on the Ichimoku chart there is quite a void of support below current levels and the 77.50 level looks feasible in coming sessions.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 10, 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





DBA  PowerShares DB Agriculture  

The following comment was made a week ago in this commentary.


DBA, the sector fund which tracks agricultural commodities, broke below key technical indicators yesterday.





CENX  Century Aluminum Co.  

Century Aluminum (CENX) has a bear flag pattern.




TBSI  TBS International Limited  

Also another comment from a week ago


The chart for TBSI looks constructive from a long side perspective.





YRCW  YRC Worldwide Inc.  

The chart for YRCW, is also a follow up on a recent recommendation for the long side.
After following through with a definitive rise from the pink cloud following an Ichimoku signal crossover there is a level of chart resistance which needs to be confronted and if broken would exemplify the requirements of a CANSLIM breakout pattern.