Daily Form November 30, 2009


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY NOVEMBER 30, 2009       05:11 ET




In last Monday’s commentary I pointed to the potential for a test of the 9000 level on the Nikkei 225 and on Friday we came within about 70 points of such a test. The fan like formation which I have demonstrated on the Japanese chart reveals that the baseline of the fan has held in Monday’s session with a 2.9% recovery.
The area highlighted on the chart indicates that there is now a distinct possibility that the 50 day EMA will perform the converse of the golden crossover as it appears to be headed below the 200 day EMA from above.
The strength of the Japanese yen, during last week’s anxieties about the troubles facing Dubai, also re-invigorated the notion that during flights to safety the yen is ultimately one of the most sought after safe haven currencies. It also is causing concern at the BOJ as the second largest economy relies upon a competitive currency (especially with respect to the renminbi which is pegged to the US dollar) to maintain the level of exports which will allow Japan to counter the deflationary forces and deteriorating public finances.
It will be worth monitoring the USD/JPY cross rate this week as there could be BOJ interventions and other cross rates involving the JPY are likely to behave erratically if such intervention is implemented decisively.



The KBW Banking Index (BKX) has now dropped below all three key moving averages and as with the Nikkei chart there is the potential for the 50 day EMA to drop below the 200 day EMA which would present a more negative tone to this key component of the US equity market.



As I was absent for most of last week I was not able to comment on the consequences of the Dubai World announcements on the FX markets. The risk aversion triggered by the most absurdly mis-timed and extravagant real estate adventure in modern history, and which will almost certainly persist and raise questions about the integrity of several emerging market ventures, showed that the two safe haven currencies - JPY and the Swiss Franc (CHF) were the primary beneficiaries of the flight to safety.
The strength of the Swiss currency also brought back into the frame the usefulness of tracking AUD/CHF as one of the carry trade pairs which needs to be monitored closely for signs that the unwinding process may be gathering momentum.
As the chart below reveals a key trend line was broken late last week and another test of last Thursday’s low is to be expected. Should that low fail to provide support the exit out of the Australian dollar could be quite ugly and produce chasms of illiquidity in forex trading which would impact significantly on the P&L’s of those large players, who have enjoyed some great few months of exploiting dollar weakness, loading up on forex carry trade pairs, and enjoying exciting returns in commodities and emerging markets.



The daily chart for Russell 2000 (RUT) is still presenting the view that the appetite for the smaller cap and higher beta stocks is in retreat and once again the 550 level seems to be an attractor level which needs to be tested.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 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





KIX    

The Insurance Index (KIX) is dropping from a bearish pullback pattern and could be heading for a test of the 200 day EMA at the 95 level.




GS  The Goldman Sachs Group Inc.  

Recent movement in Goldman Sachs (GS) has validated the weak MFI readings that have been present for some time. The $160 area should provide a potential support area and the MACD chart suggests that there could be a tradable rally back towards $180.




RNWK  Real Networks Inc  

The chart for Real Networks (RNWK) shows a decisive and bearish looking pattern as it has dropped out of a clear descending wedge pattern. A re-test of the August lows seems to be an intermediate term probability




MES  Market Vectors Gulf States ETF  

In Monday's trading the Dubai and Abu Dhabi exchanges are seeing drops of seven percent and more. There is an ETF which provides exposure to the UAE and Gulf States, MES, and the violation of the rising wedge pattern revealed would have provided clues that the region was vulnerable to a substantial correction.




PCY  PowerShares Emerging Mkts Sovereign Debt  

One other sector fund which would be worth monitoring is PCY which is a play on the sovereign debt of emerging markets. Recently the fund has seen some large volume days associated with a pullback channel and the close below the 50 day EMA on Friday and the clear violation of the uptrend line in place since June suggests that this sector could be vulnerable as the more adventurous funds have second thoughts about the risks associated with the emerging market debt and the possibility of significant haircuts for holders of these "exotic" securities.



What other skeletons are waiting to fall out of closets?

There were two developments last week in the financial world, seemingly unrelated, that should give one pause to contemplate just how much we all really know about the true state of the severity of the rolling financial crisis.

Firstly, the Governor of the Bank of England, admitted that more than £60 billions of additional emergency financing had been granted to Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS) last fall. The claim was made that to have announced this at the time would have created even more anxiety about the calamities facing the global banking system.

It has been suggested that the only reason why the news emerged was because the UK's National Audit Office would have been under an obligation to release details of this secret rescue package of $100 billion when it issues a report this week.

Secondly and moving to the Middle East, the biggest fallout from the troubles facing Dubai World is the lingering suspicion that the “books” and accounts of a lot of emerging market ventures may not be as sound as those with a positive de-coupling spin agenda would like us to believe.

The ruler of Dubai, Sheikh Mohammed bin Rashid al Maktoum, had been reassuring every one that there were no credit risk problems associated with the developers of the world's most absurdly mis-timed real estate projects, right up to the time that he had to admit that there were.

Daily Form November 23, 2009


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY NOVEMBER 23, 2009       06:40 ET




In this holiday shortened week there will be a renewed focus on the plight of the dollar, which once again in Asian/European trading on Monday seems to be doing what it does best which is to continue to slide against all major currencies.
European equities are off to a good start and the Hang Seng managed to register a 1.4% gain, although the Nikkei 225 slid back another 0.5% and closed below the 9500 level. Despite the negative outlook on the Japanese benchmark index which I discussed on CNBC’s European Closing Bell last Friday it would not be surprising to see a rally back towards the 10,000 level but the performance of the yen could play against this scenario as it is showing signs of being quite comfortably placed below the 90 level against the US dollar.
The S&P 500 weekly chart reveals an interesting candlestick formation, which at a bit of a stretch, could be likened to a gravestone doji pattern and in common with other US indices showed below there has been a notable inability to penetrate (so far) the 200 week EMA (the green line on the chart).
The seasonal characteristics are in favor of equities, and, if the dollar doesn’t surprise this week, a test of 1120 on the S&P 500 will be a target for the bulls.
This will be my only commentary this week, as I have other commitments over the next few days, and I would like to take this opportunity to wish a very happy Thanksgiving to all of my American readers.



Remarkably the weekly chart for the Dow Jones Industrial Average (DJIA) reveals another shooting star/doji formation at exactly the 200 week EMA as just observed above.



The Dow Jones Transportation (DJT) reveals several candlesticks with upper shadows which have pierced the 200 week EMA but so far this index has been unable to remain above this key technical indicator.



The weekly chart for the Russell 2000 (RUT), displays a slightly different picture in that the failure to cross above the 200 week EMA produced the elongated red candlestick formation from four weeks ago and the subsequent three weekly closes, in a pullback channel, are indicating that this index could be losing contention with the challenge reflecting the gradual diminution in risk appetite amongst US institutional fund managers.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 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





Gold    

Regular readers of the Daily Form may recall my commentary from October 6th which is available here and in which I devoted the whole analysis to gold. This turned out to be the very day that the metal began its break above the inverse head and shoulders pattern which was examined in some technical detail in that day's commentary.
By way of update the metal is breaking to new highs in Monday trading above $1165 per ounce and I would suggest that based on the diagnosis of the H&S pattern the metal could easily be ready to add another $150 per ounce in the longer term. This is an outright bull market, and any significant pullbacks, which might well emerge in coming sessions, will almost certainly be seen as buying opportunities by those who have been sceptically sitting on the sidelines so far




EUR/USD    

Time did not permit a discussion of the EUR/USD currency pair during my slot on CNBC Europe on Friday but the pattern as seen below on the 4 hour chart shows that the eurozone currency is now moving within a well defined range between about $1.50 and $1.48. The break above the upward range in Asian trading on Monday should be monitored during the course of today's North American session, as the remainder of the pattern is suggesting that a downward channel is emerging. A decisive break below $1.48 would trigger a lot of sell stops, but equally and especially with the North American market taking a break for Thanksgiving later this week and the accompanying drop in FX liquidity, a break above $1.5050 could see a rather sharp rally.
This is a key market to monitor this week and if the US dollar is to develop any positive momentum the break below $1.48, would be the signal that other rates will begin to become dollar supportive as well.




KBE  SPDR KBW Banks  

KBE, which is the exchange traded tracker of the KBW Banking Index, remains below the green cloud and the sector seems to be lacking an impetus to move it higher.




SMH  Semiconductor HLDRs Tr ML  

SMH, an ETF which tracks the semiconductor sector, is one other sector which is trading below the adjacent Ichimoku cloud formation.




XLU  Utilities Select Sector SPDR  

XLU, which tracks the utilities sector, may have found some short term support as it touched the base of the Ichimoku cloud pattern in Friday's session and there is also a chart support/resistance line in the vicinity




TUR  iShares MSCI Turkey Investable Market Index Fund  

Quite frequently the patterns about which I comment take a day or two before the anticipated outcome occurs(of course, there are those where the alternative outcome occurs as well!).
The chart for TUR, an exchange traded fund which reflects the Turkish equity market, has sold off quite significantly since the date of recommendation, despite making an upward move on the day it was discussed, which is indicated by the vertical blue line through the chart.



Daily Form November 20, 2009


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY NOVEMBER 20, 2009       04:47 ET




As discussed in yesterday’s commentary, the FX market initially provided a hostile environment for US equities during the earlier part of the session.
A lot of attention should presently be focused on the EUR/USD cross rate as there is now a good case to be made that the eurozone currency has failed three times to gain a foothold above the $1.50 level and may have reach an intermediate term high against the US currency. This currency pair is one that I plan to discuss during a slot on CNBC’s European Closing Bell this afternoon at approximately 16:40 London time.
The euro appears to be entering a channel which has lower highs and lower lows. The currency is well supported at $1.4850 and even more so at $1.48 but should the lower of those levels fail the tide could begin to turn for the US dollar with all of the associated risks to equities.
Meanwhile the long side of EUR/GBP looks constructive as sterling continues to weaken.



The Nikkei 225 lost another 0.5% in Asian trading during Friday’s session, but at least managed to register a green candlestick after gapping down and opening almost at the 9400.
I have summarized the negative pattern on this chart several times recently and although a short term rebound may have been signaled by the support found at the lows today, it seems increasingly probable that this index will eventually face another test of the 9000 level in the coming weeks.



AUDJPY, as seen on the daily chart below failed to find support at the key level at 8190 discussed yesterday and is currently straddling the 50 period EMA.
The 8040 area is now a likely test for this cross rate and, if this should hold, this will likely be taken by those favoring the resumption of normal service of the carry trade as a positive indicator for equities as we move through the festive season.



USD/CHF, which is largely influenced by the relative positioning of the Swiss currency vis a vis the euro, is showing a very gradual continuation of the basing pattern I have drawn attention to for some time. The chart shows that a fan like pattern from the recent high has been penetrated twice and the underlying momentum as reflected in the RSI chart is showing some positive divergences.
This pair would be worthy of a punt on the long side if the US dollar can break above the 1.02 level against the Swiss Franc. If the move is sustainable this would also be further validation that the euro may have seen an intermediate topping against the dollar. But play this market carefully as the US/Swiss is one of the harder currency pairs to trade.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 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





audusd    

I have already discussed the AUD/JPY rate but the AUD/USD rate is also useful as a means of monitoring the likely direction of the US dollar in the near term, partly as the dollar has become the most widely used funding currency in the carry trade. The evidence of a breakdown from a clear rising wedge formation shows that the current level is at the the top of the most obvious point of the wedge formation but a test of the lower level of the wedge origination level must also be a consideration. Needless to say if the Aussie dollar slips to that level against the US currency and the Japanese yen continues to exhibit relative strength the previously discussed AUD/JPY cross rate chart will look a lot more troublesome.




XOP  SPDR Oil and Gas Exploration  

Here are my comments from a week ago on XOP


There is a fairly well defined bear flag with the appropriate volume characteristics for XOP, an ETF which tracks the energy exploration sector.




Daily FormNovember 19, 2009


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY NOVEMBER 19, 2009       05:37 ET




At the time of writing, there are certainly reasonable prospects for a sell-off in the US market today, but as stressed on several occasions recently the real focus will be on the FX markets and the likelihood that traders/banks will mount a rally from key support levels to provide the normal backdrop that is bullish for equities i.e. a slumping dollar.
Certainly the candlestick pattern on the S&P 500 cash index, over the last two sessions, is often seen at inflection points but maybe the 1122 level which represents the 50% fibonacci retracement will prove too strong a temptation for it not to be tested in the near term.



The Nikkei 225 lost further ground in Asian trading and closed at its lowest level since July and below the 9600 level which takes out a short term support level. As seen on the chart there are two further layers of likely support that will need to be tested but if they do not hold this market looks to be re-entering its default mode i.e. bearish.



The evidence in European forex trading on Thursday morning is pointing to some growing risk aversion and with the euro notably failing now on three attempts to move above the $1.50 level the attention is shifting to other key cross rates that are now being tested.
The AUDJPY, as seen on the daily chart below is at a key support/resistance level at 8190 and just above the 50 period EMA. If that fails to hold then 8050 looks like the next key uptrend level which would need to be tested. If that fails... well that would not be good news for those who have a lot of risk assets in their trading books.



The chart for GBPUSD reinforces the theme that key currencies are at a critical juncture.
The UK currency will not be helped by the following release this morning

Nov. 19 (Bloomberg) -- Britain’s deficit in October was the worst for the month since records began in 1993 as the longest recession on record ravaged tax revenue.

The 11.4 billion-pound ($18.9 billion) shortfall compared with a deficit of 130 million pounds a year earlier, the Office for National Statistics said in London today. The median of 17 forecasts in a Bloomberg News survey was for a 7 billion-pound deficit.


Seems like more QE will have to come to the rescue.


Daily Form November 17, 2009


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY NOVEMBER 17, 2009       07:25 ET




The Nasdaq Composite (IXIC) surpassed expectations expressed here yesterday in not only challenging the 2190 level but pushing above 2200 intraday and closing at 2197. The retail sales data provided exactly the excuse to move equities higher, and despite some apprehensiveness ahead of the Bernanke speech at the Economic Club of New York, the bulls largely controlled the day’s agenda.
Meanwhile the US dollar ended at session lows, as tracked by the exchange traded fund, UUP, and Dr. Bernanke’s remarks about a strong dollar policy without any specific promise to support the currency appear to have left doubts that this stated policy is sincerely held. Ultimately there is a suspicion that it is not.

Here are my comments from my daily blog on the matter:

The following two sentences from Ben Bernanke’s address at the Economic Club of New York on November 16, 2009 are complete gems of obscurantism.


We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.


There is no specific articulation of a commitment to support the US dollar per se but rather an opinion being expressed that dollar strength will be a fortunate by-product resulting from the pursuit of the Fed’s domestically focused dual mandate.

Does this statement reflect sufficient duty of care from the custodian of the global reserve currency?



Unlike the Ichimoku charts I reviewed yesterday the exact converse is true for this chart in that rather than being supported when dropping down to a cloud formation, UUP has been unable to make any meaningful piercing of the cloud above since April.



The Nikkei 225 lost ground overnight and is just barely hanging on to the 9700 level in a chart that shows all kinds of negative characteristics.



I am struck by the chart below showing the yield on the five year US Treasury note which came to rest at the pivotal 2.2% yield level after yesterday’s session. The left hand of the chart (indicated by the letter A) is the inverse almost exactly of the right hand of the chart (B).
At least foreign buyers of US Treasuries are being rewarded at present in being able to purchase dollar denominated debt at bargain basement prices, but there must be some concerns that those prices could become fire sale prices at a later date.



In European trading there are some interesting moves in FX - mainly focused on cross rate trading (especially the EURGBP rate) - but there is some evidence that the dollar is perking up against the Swiss Franc.
I am hesitant to make too much of this but if the downward trend-line was to be decisively broken in coming sessions there just might be some bite behind the jawboning of central bankers, including Monsieur Trichet who would love to see a stronger dollar.
However, until there are some clear technical signs showing a break down in the Australian dollar and the Euro, the default positioning adopted by the large carry traders is to keep exploring lower levels on the US currency.


Daily Form November 16, 2009


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY NOVEMBER 16, 2009       06:42 ET




The Nasdaq Composite (IXIC) closed Friday’s session at the 2167 level and now looks set to tackle the previous recent intraday high of 2190 from October 23rd.
Reviewing the simplified Ichimoku chart below it is quite remarkable how simple the pattern has been since the March low. Whenever the index has retreated to the green cloud, at which points it has also tagged the 50 day EMA, buying support has emerged to take the index higher.
It is hard to avoid the conclusion that this is a fundamentally up-trending market with underlying dynamics which suggest that the dips are persistently seen as buying opportunities. Until the evidence shifts on this interpretation those who conduct the occasional bearish raids on this and other equity indices will have to satisfy themselves with opportunistic gains if they cover quickly enough or losses if they become too passionate about their belief that this market is unsupported by the fundamentals.
Not being much of a believer in the notion that one can determine the "fundamental value" of equities, the simple adage that the trend is your friend captures the flavor of the rewards obtained by those who have taken the ride up since the piercing of the pink cloud in early April.



Similar comments to those made above can be applied to the Hang Seng Index in Hong Kong which seems to be headed towards the 24000 target discussed here last week. As is also evidenced by the accompanying chart, only once in early July has this index even pierced the green cloud, and, on every occasion when it has been tested, the 50 day EMA has provided immediate support.



In contradistinction to the analysis provided for the two charts above the KBW Banking Index (BKX) is one of the few of the major sector charts to reveal a drop below the green cloud.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 16, 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





GRMN  Garmin Ltd.  

Garmin (GRMN), active in the satellite navigation field which now faces a possible broken business model as Google begins deployment of a competitive service which is essentially free, looks vulnerable to further weakness.




FITB  Fifth Third Bancorp  

Fifth Third Bancorp (FITB) is just one of a number of financials which seem to have lost upward momentum.




XING  Qiao Xing Universal Telephone Inc  

XING is in a tight range but the MFI and volume charts are suggesting that an upward breakout could arise in coming sessions.




TAP  Molson Coors Brewing Company  

Molson Brewing (TAP) could be approaching the top of a bearish pullback channel.



Daily Form November 13, 2009


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY NOVEMBER 13, 2009       04:20 ET




Global equities received a teaser of what might happen when the tide eventually turns for the US dollar. The intraday action for US equities clearly revealed that the driver of yesterday’s slow attrition in stocks was the manner in which FX traders were pressuring, in a well orchestrated manner,most foreign currencies and in particular, the Australian dollar, Canadian dollar and the Euro.
As is becoming customary, the small cap stocks demonstrated that high beta is not the place to be when the animal spirits are waning. The action in IWM was one of the most decisive with a break below key moving averages and reasonably substantial volume, considering that other index proxy ETF’s showed below average volume.



The Bovespa index in Brazil wobbled at the 66000 level as anticipated and fell by 3%. The EWZ exchange traded fund provides an opportunity to take a view on this key component of the BRIC geographical sector, but notably yesterday there was a lack of strong volume on the downward move suggesting that those intrigued by the emerging markets are not yet convinced that the tide has turned.
Even the performance of the VIX yesterday suggested that, despite some clear signs that fund managers were rattled by signs of life in the moribund dollar, the presumption is still that further progress for equities lies ahead.



The euro found support at $1.4820, just above the level indicated by the lower red line which was included in my chart in yesterday’s colum.
If the currency finds difficulty in regaining its foothold above the $1.49 level in today’s session, the lower levels seen on the chart would seem to be back in play in the intermediate term.



Also yesterday’s comment on the possibility of an evolving basing pattern in the dollar against the Swiss Franc is illustrated by the charts from yesterday on USD/CHF. The dollar moved up to exactly the long standing downward trend-line and it would not be surprising to see some consolidation in today’s session before there is another attempt to break through.
The consequences for asset allocators of a decisive shift towards a more positive sentiment for the US currency should not, in my view, be under-estimated






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY NOVEMBER 13, 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





XOP  SPDR Oil and Gas Exploration  

There is a fairly well defined bear flag with the appropriate volume characteristics for XOP, an ETF which tracks the energy exploration sector.




EWJ  iShares MSCI-Japan  

EWJ, as a tracker of Japanese equities, reveals one of the few sector funds which is trading below its 200 day EMA, and areas of obvious chart support are apparent back at the levels seen in early July.



Daily Form November 12, 2009


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY NOVEMBER 12, 2009       07:02 ET




IWM, the exchange traded fund which tracks the Russell 2000, continues to register formations which are not reassuring for the bullish argument.
There is no denying that the mountains of zero interest rate credit being created by the world’s central banks remains a major plus for equities, but the fact that institutional investors are becoming more selective and focusing more on the large cap stocks and the macro index plays, suggests that sentiment is becoming gradually more risk averse, and that there is a reluctance to buy into the robust version of the global recovery story.



The weekly chart for the Bovespa index in Brazil shows just how extraordinary the V shaped recovery from the 2008 lows has been as this index has more than doubled since late last year. If one excludes the area highlighted on the chart from the spring of 2008, the proximity to previous resistance levels is yet another reason to believe that investors’ ardour for emerging markets, which have been soaking up an enormous amount of easy "hot" money can, as previous episodes such as the Asian crisis of 1997 have shown, be very fickle when unease develops about the sustainability of such rewarding adventures.



EUR/USD could test support today at the $1.49 level and then a more critical test would be faced at the $1.4815 level.



The daily chart for USD/CHF shows that positive RSI divergences, which I have noted here recently on shorter time frame charts, are unfolding as the attempts to push down to the parity level appears to have stalled.
If the US currency can break the descending red trendline which coincides closely with the 50 period EMA, one should expect some rather brisk short covering action.