Daily Form February 10, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY FEBRUARY 10, 2009       08:50 ET

The period covered in the hourly chart below for the Nasdaq 100 proxy, QQQQ, shows almost all of the trading for the year so far.

Clearly visible is the resistance that the index encountered yesterday at the highs seen on January 6th. Reticence to really challenge that level ahead of today’s announcements provided a good excuse for traders to hurry up and wait.

As suggested yesterday, the trading over the last several weeks has been extremely range bound and the path of least resistance for the tech stocks, at this point, would be down unless new proposals provide a catalyst to propel equities above the upper end of their recent range.

The hourly chart for the S&P 500 cash index shows how resistance was encountered yesterday, but, as can be seen from the fibonacci grid, the index still has to make it through the 50% retracement level from the early January high and the January 20thlow.

I would suggest that we are at a juncture where many market participants are expecting an upward breakout but also where one has to imagine that are a number of bearish traders looking to fade any quick enthusiasm for what might be seen as a final breakthrough in resolving the banking mess.

The real test for this index would be to see rather sharp reversal to the upside if the 850 level is successfully re-tested in coming sessions.

The hourly chart for sector fund which tracks the Japanese yen, FXY, reveals two long red candlesticks during yesterday’s session and a retracement pattern that began before the close of trading yesterday.

On any rally back towards the 110 level would provide a good entry point on the short side.


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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