Daily Form February 17, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY FEBRUARY 17, 2009       05:51 ET

My inclination at this stage with respect to the S&P 500 (SPX) is that on balance, even though I believe that the 850 level needs to be tested again soon, many traders will be motivated to probe further to the downside and see if the 800 level will hold.

Action in overseas markets since the conclusion of trading in New York on Friday has been broadly negative and the economic news, including horrendous GDP numbers from Japan is showing that even with the widespread, gloomy view of the global economy there is still the capacity for nasty surprises of a negative nature.

The Euro is beginning to crumble in trading on Tuesday. After drifting during most of last week there is a continuation of the bearish downward staircase pattern to which I alluded last week.

There was an alarming article in the Daily Telegraph on February 15, 2009 by Ambrose Evans Pritchard. For those not familiar with the journalist he does have a rather apocalyptic view of world events and was for many years based in the US and a ferocious critic of the Clinton Administration and accused the Clintons of all kinds of malfeasance.

Over the last several years he has been an astute reporter on the global financial crisis but is not someone who could ever be accused of understatement.

Here is an excerpt from his piece

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany’s Peer Steinbrück. Not our problem, he said. We’ll see about that.

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region’s GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

The article is worth reviewing and, even if, just part of what he claims is about to unfold in Eastern Europe and Russia, does take place, this would create massive problems for the Eurozone economies and the ECB with knock on implications for the global financial system.

The Hang Seng Index (HSI) dropped by almost four percent in Tuesday’s session and this was closely matched by a similar fall in Shanghai. As suggested here recently there are bullish indications emerging from the Shanghai Exchange (SSEC) and undoubtedly there are institutional traders that will see pullbacks in this geographical sector as buying opportunities.

The Mumbai Exchange (^BSESN) indicates that not all emerging markets should be embraced with enthusiasm by those with a more adventurous approach to global equities.


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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FXY  Currency Shares Japanese Yen  

I remain bearish on the Japanese yen and the chart for FXY shows that critical trend lines are being violated.

TJX  The TJX Companies Inc.  

TJX, mentioned here last week in regard to a mini bull flag formation, still looks favorable on the long side.

TAP  Molson Coors Brewing Company  

Although it makes good beer Molson Coors Breweries (TAP) looks to be setting up for a further leg down in coming sessions.

HGSI  Human Genome Sciences  

Volume characteristics are supportive of a further move up by Human Genome Sciences (HGSI).