Daily Form December 21, 2009


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY DECEMBER 21, 2009       06:31 ET




As we move into the quieter trading for the remainder of the year the S&P 500 seemingly has entered a sideways trading range within a "safe" zone between 1085 on the lower boundary and 1120 above. The near term movements in the US dollar will continue to force the pace I suspect, and the real test for the bullish argument would be a continued decline in the euro below the $1.4180 level which I anticipate as the next major area of support for the Eurozone currency. If that does not provide firm support and the S&P 500 drops below 1080 then there could be some more serious selling of US equities as the end of the year approaches.

Ambrose Evans Pritchard, one of my favorite financial journalists, who is a Eurosceptic, at least with regard to the currency union, had the following comments about the European Monetary Union in today’s Telegraph .

The EMU system has condemned Club Med (i.e. the southern European nations) to structural depression, with no way out.

Eurosceptics argued from the start that EMU would prove unworkable over time without a debt-union; that the inevitable euro crisis would be used (consciously or not) to create an EU central government; that weak states on the edges would be reduced to colonies and that far from binding Europe together, EMU would lead to acrimony and perhaps reopen Europe’s can of historical worms. Were the critics wrong?


It may seem odd to be linking this to the graphic for the S&P 500 but the current fragility of the euro and the growing distaste of the Chinese to be too reliant on using the US dollar as its largest reserve currency are inter-linked and will probably be large factors in determining the appetite for US equities during 2010.
This is my last letter for this year and I would like to wish all of my readers the very best for the holiday season and good fortune in 2010.



The Hang Seng Index (HSI) has continued its slide and could now be set for a re-visit to the 20,000 level.



The chart pattern for the USD/JPY looks constructive for US dollar bulls and a return to the 92.30 level would seem to be an attainable target in coming sessions.



In the light of the comments above, another key FX cross rate to be monitoring over the coming weeks will be the AUD/JPY rate which I have discussed numerous times here during the last few weeks. There is emerging evidence of a descending wedge pattern and if this rate were to drop below the 76.50 level (as almost touched on the session following US Thanksgiving and linked to the Dubai World announcements) this would pose increasing problems for the FX carry trade which still seems to be carrying the torch for risk assets.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY DECEMBER 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





XLP  Consumer Staples Select Sector SPDR  

XLP, the exchange traded fund for consumer staples stocks, appears to be attracting sellers near its recent highs.




GRMN  Garmin Ltd.  

Garmin (GRMN), has been in an extended pullback phase since large losses on heavy volume but seems to be unable to regain a footing above key resistance levels.




EMC  EMC Corporation  

EMC, shows bullish range expansion on substantial volume following an inside pattern last Thursday. This is often a bullish indicator and I would be targeting higher prices in coming sessions.




MTH  Meritage Homes Corporation  

Meritage Homes (MTH) displays a similar pattern to that seen for EMC and should be good for a move towards the $19 level.




PFG  Principal Financial Group  

Principal Financial Group (PFG) has a bearish pullback channel and would seem to be hard pressed to move back above the convergence of the 50 and 200 day EMA's



Daily Form December 18, 2009


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY DECEMBER 18, 2009       04:52 ET




The broad based sell-off in equities yesterday should be primarily attributed to the new found strength in the US dollar and as discussed here yesterday this almost allowed the USD/CHF to pierce a key target set here recently of $1.045.
There could well be a digestion of recent gains for the dollar today and my attention will be on the KBW Banking Index (BKX) which has returned to a key support level as indicated on the daily chart below.
Whether or not this index, and the financials in general, are able to mount a relief rally near to current levels will, in my opinion, be as important as the FX background (and they are related) in determining the near term direction of US equities



Another major casualty of the recent dollar strength has been spot gold but as the chart below for the Gold and Silver Index (XAU) reveals, this index is now approaching an area of potential price support as well as the 200 day EMA.



The Australian dollar fell to exactly the level anticipated in yesterday’s Ichimoku chart pattern.



The four hour chart for EUR/USD shows just how little buying interest there is currently in the Eurozone currency and, should there be a rally back towards the $1.45 level, I would suspect that this will bring out the sellers in force again.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY DECEMBER 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





KBE  SPDR KBW Banks  

KBE, which is the exchange traded tracker of the KBW Banking Index, should be monitored today on the intraday chart patterns (I would suggest the 15 minute chart) for signs that a positive MACD divergence could provide a tradable bounce for today's session.
However the evidence on the daily chart at present is still not compelling, and this will be a task for Monday's column (which will be my last for 2009).




JPM  JPMorgan Chase and Co.  

I shall repeat my thoughts from Wednesday regarding JP Morgan


JP Morgan (JPM) has also reached back to a key level just above $40.50. Even though the chart reveals a dome like appearance, this could be a reasonably attractive trade on the long side with a stop loss level around $39.30 which also coincides with the 200 day EMA and an upside target around $43.80 which would provide a 2:1 reward/risk ratio.





GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) has continued to decline in what is increasingly taking on the appearance of a downward wedge pattern. The stock would appear to be well supported just above the $150 level and appears to face strong resistance from the downward trendline through the highs since topping in mid October.



Daily Form December 17, 2009


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY DECEMBER 17, 2009       06:55 ET




I made the comment recently that if the Euro failed to find support at the $1.45 level there was a rather disturbing prospect that some large FX players may know more about the internal European Monetary Union dynamics than the bulk of the market. We shall have to wait and see just how much further there is to be known about the tightrope being walked by the ECB at present as S&P have joined the fray with a BBB+ downgrade of Greek sovereign credits.
The weekly chart below for EUR/USD suggests that major support for the euro may have to wait to $1.4180 before it kicks in.



USD/GBP has also fallen out of bed this morning on weaker than expected retail sales data in the UK.
The Bank of England may be keen on a weak pound but the Treasury still has £200 billion of gilts to sell this year and next year and may have to take another look at its QE stance.
At least the Christmas lights look nice in London at this time of the year - it even snowed here yesterday to provide some additional seasonal cheer.



To complete the trio of headaches for the big FX carry trade advocates the Australian dollar is breaking down as well as the bullish dollar bandwagon gathers pace.



The chart below for the Hang Seng is reminiscent of the one for the Nikkei 225 a few weeks back. The BOJ managed to find a rabbit or two still in its hat and conjured the Nikkei back to life so we shall have to see whether the Chinese authorities also can deliver the necessary placebo to "stabilize" matters.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY DECEMBER 17, 2009


The patterns identified below should be considered as indicative of eventual price direction in forthcoming trading sessions.
None of these setups should be seen as specifically opportune for the current trading session.
For a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm





GS  The Goldman Sachs Group Inc.  

Notice the huge green volume spike on the open yesterday in trading for Goldman Sachs (GS) which more or less coincided with a comment from the company that it was recommending long EUR/USD positions with a $1.55 target in three months to its clients. Initially the euro found a bid on the comments and the GS prop trading desk, which has most likely been busy selling US dollars to support its book, must have felt that the market was willing to listen, as ever, to the smart strategists at the firm.
As the day wore on and with the less than super-accommodating remarks from the Fed, the new found affection for the greenback gathered more momentum and this has really kicked in during the overnight session in Asian trading and in Europe this morning.
GS may, like many firms with large proprietary trading interests have to re-assess some of its current positioning or may be it should simply keep repeating its message about the attractiveness of the euro at current levels.
It promises to be an interesting session when North American trading opens and GS and JPM will be well worth monitoring today.



Daily Form December 16 2009


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY DECEMBER 16, 2009       06:46 ET




Continuing with one of the themes from yesterday’s column, there are some unusual cross currents at work in the markets at present. The overall outlook for equities still seems to be favorable, reinforced by a positive seasonal bias, and yet beneath the surface there are some discordant under-currents.
The banking sector is drifting downwards and the KBW Banking Index, as tradable in the form of KBE, has broken below its 200 day EMA. Several of the major banks are also at quite critical levels as discussed below.



While writing this Germany’s DAX is making new highs for the year. Especially notable on the Ichimoku chart below are the highlighted areas indicating the remarkable ability of the bottom of the green cloud formations to capture almost exactly recent inflection points. Using these cloud patterns can be a very useful way to set targets and stop levels in your trading.



The EUR/USD managed to remain above the $1.45 level in trading yesterday - but only just.
The daily chart reveals a drop below the green cloud formation which concurs with other negative technical signals from the Eurozone currency.



Normally I would use the AUD/USD spot market chart to illustrate the point, but the exchange traded fund FXA may be more accessible to some traders. In Asian trading the Australian central bank indicated that it might be relaxing its tone in terms of tighter monetary policy in the light of sub-par growth for the Australian economy in the most recently released economic data.
If the Aussie slips below the 89.50 level on the chart there is plenty of scope for downside action and this could further play into the strengthening US dollar scenario which is gaining traction.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY DECEMBER 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





BAC  Bank of America Corporation  

Bank of America (BAC) is continuing to slide back towards my initial target at the $14 level.




JPM  JPMorgan Chase and Co.  

JP Morgan (JPM) has also reached back to a key level just above $40.50. Even though the chart reveals a dome like appearance, this could be a reasonably attractive trade on the long side with a stop loss level around $39.30 which also coincides with the 200 day EMA and an upside target around $43.80 which would provide a 2:1 reward/risk ratio.




KO  The Coca-Cola Company  

Coca Cola (KO) is bound to show up in year end window dressing but the stock faces fading momentum as it approaches the $60 level.



Daily Form December 15, 2009


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY DECEMBER 15, 2009       06:36 ET




The daily chart showing the yields on the US 10 year Treasury Note is displaying an intriguing pattern which bears some resemblance to the inverted head and shoulders pattern that was evident on the spot gold chart in early October.
One other intriguing feature which has been emerging is the widening of the 2/10 spread whereas there has been a slight contraction in the 2/30 spread. There could be numerous strategies at work as regards future expectations of the shape of the yield curve, but if the exit, in general, from longer dated maturities is being stage managed through short term arbitrage strategies, then the eventual move up in yields for all longer dated Treasuries may not be as orderly as the Fed and the Treasury would prefer.



As anticipated here last week the Russell 2000 is enjoying some late year enthusiasm with a 1.6% gain yesterday whereas the S&P 500 could only manage one half of that increase. The renewed vigor of the high beta stocks however needs to be considered alongside evidence that many portfolio managers seems to be migrating to the large cap defensive stocks including the utility stocks as discussed below.



The hourly chart for the EUR/USD since the beginning of December shows that large FX players are quite keen to exit this pair with very little attempt to conceal their efforts with any of the normal counter-trend relief rallies.
As we reach towards the $1.45 level in European trading this morning, which I anticipated in last week’s commentary, there should be support for the Eurozone currency. If that support was to fail to arise this would indicate that there are some large institutional sellers who may have information regarding the internal dynamics of the European Monetary Union, and the financial conditions within some of the member states, which have not been widely recognized by many traders focused on equities.



The movement up in the utility stocks, as reflected in the weekly chart for the Dow Jones Utilities Index, shows that the last two weeks have seen a clear break above a key resistance level. The action in this index adds some conviction to the bullish case for equities in general, but is somewhat incongruous with the potential for higher yields on the long end of the Treasury yield curve and also with the search for higher beta as revealed in the strength of the small cap stocks.
Also evident on the chart is the attainment of the 200 week EMA which has still to be registered for the S&P 500. The cross currents at work in US equities at present may have a lot to do with the difficulties of dis-entangling the rather confusing evidence relating to the economic recovery pattern and the outlook for intermediate term monetary policy.
On this issue the following recent comments from Stephen Roach of Morgan Stanley are quite revealing:

The Fed is the “weak link” among central banks and may fail to tighten monetary policy in time to stop asset bubbles from forming, Roach said at a conference in Berlin today. The Fed helped trigger the boom and then bust of the subprime mortgage market by being “quick to slash, slow to normalize” interest rates, he said.

“There is a great risk in the coming exit strategy,” said Roach, a former Fed economist. “They are lacking primarily a political will to execute the exit in a timely and expeditious fashion that will avoid the mistakes of the last crisis.” The traditional view of central bankers that asset bubbles are hard to spot and deflate with rates is “ludicrous,” he said.

“This is a failed flaw in the intellectual construction of modern central banking that must be addressed,” said Roach. “If we don’t fix this problem we’re doomed to repeat the failed asymmetric policies of the past and set ourselves up” for another crisis.



Daily Form December 14, 2009


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY DECEMBER 14, 2009       06:20 ET




European markets on Monday morning have moved upwards on a sigh of relief that Abu Dhabi has come to the rescue of the world’s leading example of a submerging market venture - the Palm Tree Island project in the gulf at Dubai.
What is quite remarkable about this relief rally is that the troubles facing Dubai World had already been discounted last week as inconsequential for world markets. So we got two rallies for the price of one!
The sector fund EEM meanwhile seems to be struggling to regain its upward momentum and traders may be keeping a closer eye on the US dollar which seems to be showing a little more signs of life than its previous appearance of rigor mortis was suggesting.



The key level to watch for on the USD/CHF chart would be a break above 1.047. The Swiss franc most reliably tracks the Euro/USD relationship so from the perspective of the EUR/USD cross rate the $1.45 level seems to be a possible target this week - and there is mounting technical evidence that this previously strong support level for the eurozone currency may not hold.
As I commented elsewhere this weekend, the biggest problem facing the ECB is whether to continue accepting government paper from all of the EZ states as equivalently priced for risk i.e. with no differentiation for the AAA borrowers (France and Germany) or the BBB+ paper of Greece and also some other "problematic" credits from Ireland, Spain, Italy etc.
Any sign of dismemberment of the EZ bloc - e.g. if Greece had to leave - would be a major disruption in the global capital markets and not as easily dealt with as the troubles of Dubai World or the collapse of the Icelandic economy.



While the European currencies gyrate against the dollar, the real sideshow is the EUR/GBP cross rate which continues to confuse and confound many day traders. I would rather watch from the sidelines at the moment on this pair.



EZA, an exchange traded fund which tracks the iShares MSCI South Africa Index, is, echoing the EEM pattern reviewed above, showing evidence that the larger volume coming into the fund is associated with down moves and the pullback is on much lighter volume.


Daily Form December 11, 2009


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY DECEMBER 11, 2009       04:21 ET




Yield on the $13 billion 30 year Treasury bond auction yesterday came in at 4.52% more than the expectation of a 4.48% yield, and was described at ZeroHedge.com as being the ugliest 30 Year Auction This Year.
From a technical point of view the penetration through the descending trend line through recent highs, although it has given false signals previously over the last year, is something which the Fed and Treasury will have to monitor carefully in regard to the financeability of the mountains of long term Treasuries contemplated by the US.
Zero Hedge’s outspoken postings, written under the pseudonym of Tyler Durden, are often designed to be deliberately provocative but the following point regarding the yield curve which was made following yesterday’s auction could present difficulties in trying to push out the average duration on US government debt

Just in case there is anyone still doubting what an impact the Fed’s intervention in the bond market has had courtesy of the first (soon to be followed by second) QE program, one needs look no further than the 2s30s curve, which, at 372 bps is now the widest it has been in thirty years. However, regardless, of how one interprets Bernanke’s indirect market manipulation, one thing is sure - investors are walking, no running, for the hills when it comes to the long-end of the curve. We wish Geithner all the best in his attempt to issue hundreds of billions of debt with a tenor greater than 10 years.




It’s time to come to the rescue of the banking sector as the KBW Banking Index (BKX) has slipped below the 200 day EMA. A re-test of early November lows may be in store, but perhaps a Santa rally continuation will help to sprinkle some fairy dust over the sector as the refunding of those banks wanting to repay the TARP is still not completed.
Overall positive sentiment could well prevail again for equities today as the US dollar seems to be reverting to its default mode of sliding against key currencies, even though there have been some suggestions in recent sessions that those short the dollar are getting a little more jumpy.



XLB, has a mini bear flag formation.



XLF, the exchange traded fund which tracks the financial services sector, could be headed toward the 200 day EMA but its fate will be intertwined with that of the banking sector as already discussed.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY DECEMBER 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





CMI  Cummins Inc.  

Cummins Engine (CMI) has a bearish pullback formation which could now find resistance at the intersection of two moving averages.




CYMI  Cymer Inc.  

Cymer (CYMI) has a bullish pullback pattern.




DLTR  Dollar Tree Stores Inc.  

Dollar Tree Stores (DLTR) looks vulnerable to further weakness.




FCS  Fairchild Semiconductor International  

Fairchild Semiconductor (FCS) is pulling back following recent advances on strong volume and the $10 level seems to be a feasible intermediate term target.




ISIL  Intersil Corporation  

I would also be looking at the long side on Intersil (ISIL) as it approaches the intersection of all three moving averages.




VSH  Vishay Intertechnology  

Vishay Technology (VSH) has consolidated following recent surges on substantial volume and an entry at $7.50 with a profit target around $8 could be a short term play.



Daily Form December 10, 2009


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY DECEMBER 10, 2009       06:53 ET




Equity markets continue to remain a captive to the risk appetite/weak dollar versus risk aversion/ dollar strength dichotomy. In European trading the US currency seems not to be attracting a firm bid and to that extent I would suggest that the most likely direction for US equities today is upwards.
The Russell 2000 chart has been slowly transforming into a more positive formation in recent sessions, and this would suggest that a seasonal rally could be rewarding to the small cap stocks.
On a longer term outlook I would look to be exiting this section of the market on a rally back towards the mid October highs.



The Nikkei 225, despite a surge from the 9000 level just two weeks ago is giving back some gains and notably failed to close above the 10,000 level in Asian trading on Thursday. More importantly, as anticipated in comments here recently the 50 day EMA is poised to cross the 200 day from EMA above if the slippage continues.
This remains the most vulnerable major global index in my opinion.



EUR/GBP cross rate is also at a key level and is moving further into the apex of a triangular formation on the four hour chart which suggests that a decisive directional breakout is imminent.
As my comments below indicate, I believe that the euro has put in an intermediate term top and the key to the EUR/GBP pair now is the manner in which sterling behaves relatively to the US currency. The technicals are not really clear in terms of which way this breakout might go and the fundamentals are even more confusing, especially with Greece being downgraded to BBB+ and Spain on negative watch on the one hand, and the UK’s PBR being an exercise not in Austrian economics but Ostrich economics.
For more on this fanciful notion readers may want to read the following .



Based on the chart formations the euro will struggle to regain a footing above $1.4850 and I would not be surprised to see $1.47 broken in coming sessions which would then open up a sharper drop to the $1.45 level where a rebound rally should be expected.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY DECEMBER 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





RJI  Rogers Intl Commodity ETN  

As a follow up to two charts mentioned in this commentary recently, RJI, which is an exchange traded fund which tracks the Rogers Commodity Index, has sold off sharply as anticipated following the candlestick pattern highlighted on the chart. Support may now be provided by the 200 day EMA.




SLV  iShares Silver Trust  

Also, as anticipated here in Monday's column, SLV broke down below the $17 level in yesterday's session and should eventually (but not necessarily in a hurry) re-test the $15.80 level.