Daily Form March 2, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY MARCH 2, 2009       06:55 ET

As I indicated during a slot on CNBC Europe last Friday the charts for the S&P 500 are not terribly instructive in attempting to pinpoint support levels now that we have broken on a weekly closing basis below the 740 area, so it might be more helpful to review other indices where there is clearer guidance.

The long term monthly chart for the Russell 2000 (RUT) shows that there is evidence of support in the region of 330/340 on this index which held during the corrections of 1998 and also of 2002/3. This would suggest about another twelve percent or so of downside and by rather simple extrapolation one could then propose a rough target of approximately 650 on the S&P 500.

It was a bleak day of trading throughout Asia on Monday morning with the Nikkei 225 dropping back towards the levels just around 7000 which were probed at the end of October 2008. If we return to 7000 we will once again be at levels not seen for a quarter of a century and depending on how trading goes in the US this afternoon that test for the Tokyo index could come as soon as tomorrow’s session.

There was a four percent decline in Hong Kong on Monday. The Hang Seng Index (HSI) clearly shows a pattern of two failed attempts during the last three months to sustain any kind of meaningful bear market rally.

There is almost ten percent further to fall if traders want to revisit the late October low.

HSBC announced a £12bn ($17bn) rights issue before the London markets opened this morning which is remarkable in several respects. The bank, which is truly global, has been one of the better performers over the last two years, but it has recognized the need to raise additional capital despite an extremely difficult environment.

Also the fact that they believe that they can raise capital from the private sector when most of the other UK banks are in the emergency/intensive care unit of the Government’s new NHS for bankers, also shows a strong conviction that they wish to remain outside the web of government funding and oversight.

What is becoming clearer is the development of a two tier banking system which will change the financial landscape. A small group of banks will be completely independent of public sector support but an increasing number are, for all intents and purposes, nationalized.

The European markets are acting our their own version of the slow motion crash in Monday morning’s session with the DAX, CAC40 and the FTSE all down approximately 3%.

The FTSE is actually extending its losses as this is being written and is now down by four percent from Friday’s close.

There are two key values to be monitored today - one is the intraday low printed on the index of 3665 from October 31, 2008 which is literally just a whisker from current levels. If that breaks the March 2003 lows of 3255 would become the next feasible target for testing.


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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