Daily Form January 15, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY JANUARY 15, 2009       06:50 ET

Odds are certainly increasing that traders are not convinced that the low seen in November can be relied upon.

Looking at shorter term potential targets on the downside the following hourly chart for the Nasdaq 100 tracker, QQQQ, shows that yesterday’s close was a good place to cover short positions for a possible bounce today but that the next target for the bears should be the December 5th levels around $27 as indicated on the chart.

The Nikkei 225 (^N225) slumped in Thursday’s trading and closed just above the 8000 level raising the possibility that this market may need to re-test the 25 year plus lows that were recorded in late October.

Apart from the reaction to the adverse news from the US yesterday Japanese traders also had the somewhat alarming news of a record 16.2 percent fall in Japanese machinery orders in November from the previous month.

The FTSE broke down below the 4200 channel that had been in place since late November raising the possibility that this market needs to re-test the next layer of potential support in the region of 4000.

As intimated in yesterday’s column the Dow Jones Transportation Index (^DJT) has the weakest technical characteristics of the broad US indices and it fell more than other indices yesterday with an almost five percent drop and is closing in on the November low.

The two areas highlighted on the chart clearly reveal that this index fits remarkably into the classic descending wedge pattern with the exception of the two false breakouts indicated. The failure to break the downward slanting trendline illustrates the nature of a structural bear market where all attempts to rally are met with renewed selling. Whether we will break through the baseline, which seems increasingly probable, could be seen as soon as today.


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.
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HYG  iShares High Yield Corporate Bond  

I have made several comments that HYG, which tracks the high yield corporate bond market looked vulnerable at the 80 level and it has subsequently retreated and continued in that direction yesterday.

The hourly chart reveals a rather striking bear flag formation that emerged in yesterday’s trading suggesting that more weakness may lie ahead as the enthusiasm that emerged in late December dissipates.

C  Citigroup Inc.  

Citigroup (C) is approaching a critical level.

NOC  Northrop Grumman Corporation  

Northrop Grumman (NOC) reveals a tiny doji star in the context of a pullback pattern and may find support at the converged moving averages.

CREE  Cree Inc.  

Cree (CREE) has also retreated to possible support levels but the long side is clearly subject to the risk that bearish index traders may be anxious to find the new bottom.

EMC  EMC Corporation  

EMC is one of the long trades that I shall be considering today if the market can stabilize for some kind of bounce.