Daily Form January 27, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY JANUARY 27, 2009       05:42 ET

There was a fairly constructive tone to US equities trading yesterday, perhaps partly inspired by some strong gains in Europe. As noted yesterday Barclays bank was a major dynamic in trading throughout Europe yesterday after the bank provided some reassurances that it is not in urgent need of capital. Whether the markets continue to believe that remains to be seen but there was a massive short covering rally which even spilled over into trading in Asia overnight.

The S&P 500 (^SPC) is showing signs that a trading range regime is in effect with 800 or thereabouts as a downward limit and 930 as the upper limit.

Rather than attempting to read the tea leaves for each day to day move, one approach that some traders appear to be taking is one of being fairly detached and buying the index when the lower level is being approached and reversing as we come back towards the 900 level.

This may be the sanest way to play things until longer term directional become more apparent.

The Nikkei 225 (^N225) had a very positive session on Tuesday as the index leapt by almost five percent. Once again a trading range is evident.

Yields on the ten year Treasury note (^TNX) are slowing in their ascent and a 2.75% yield seems like a target during this week which will see a lot of refunding activity.

The exchange traded fund, FXE, will be on my radar screen for entry opportunities on the short side around $1.33.


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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PFF  iShares S and P U.S. Preferred Stock Index  

PFF, which tracks the S&P Preferred Stock Index, can provide useful insights into the appetite which institutions have for the less visibly trade capital structure of the banks.

It is becoming one of the barometers that I am using for assessing, at least at a fairly simple level, the risk aversion/speculation matrix.

SHY  iShares Lehman 1-3 Year Treasury Bond  

There are a huge variety of exchange traded funds focused on fixed income asset classes which provide good trading opportunities in the current environment.

The fund which tracks the short duration Treasuries (1-3 year), SHY, appears to be over-extended but may find support at the 50 day EMA (red line on chart).

ADSK  Autodesk Inc.  

I would also be looking at Autodesk (ADSK) for opportunities to sell on any further rebound following the recent large gap down.

LM  Legg Mason Inc.  

Legg Mason (LM) will be on my Watch List for a short term opportunity on the short side as a bearish pullback pattern is emerging.

OMC  Omnicom Group Inc.  

Omnicom (OMC) looks like it could be vulnerable to further weakness in the vicinity of $27.