Daily Form March 4, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY MARCH 4, 2009       03:41 ET

The separate testimonies from Mr. Bernanke and then Mr. Geithner provided the backdrop to a roller coaster session for US equities. Early gains were eventually eliminated and many indices continue to probe new multi-year lows including the S&P 500.

The magical 700 level gave way validating the claim that I have made since the beginning of the year that we would see a 6 as the first digit on this index during 2009.

We may be close to a level from which a bounce would take us up quite sharply but I suspect that the 745 area would be hard to penetrate and I am still expecting to see us move to even lower levels than those seen currently.

One factor that could help lift spirits today is that there was a decent rally in China in trading on Wednesday which also helped the Hang Seng to a 2.5% plus gain. Even the European markets seem to have a bid following an especially poor showing from the UK’s FTSE index, as discussed here in yesterday’s column.

The shanghai Exchange (SSEC) mounted a six percent rally. There is hope that aggressive stimulus from the government will help to arrest some of the dramatic layoffs and closing down of factories that has been creating civil disturbances in several regions of China.

The KBW Insurance Index (KIX) continues its relentless decline and unlike its sister, the Banking index (KBW), which has not made a new low in recent sessions and which has indications that a momentum low is in place. the insurers are now in uncharted territory at least in regard to the historical data available for the KIX.

The US dollar has made excellent gains across the board over the last few weeks but the UUP sector fund which represents a bullish play on continued dollar strength is reaching an area of chart resistance.

For those looking to exit long positions on the US dollar and perhaps even begin to consider the short side the fund UDN allows a participation in any corrective activity. My suspicion is that dollar weakness will be temporary and that traders should still be cautious of exposure to the European currencies in particular.


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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

XLP  Consumer Staples Select Sector SPDR  

XLP, the sector fund for Consumer Staples, continues to surprise me as it seems to be in a nosedive and under-performing the consumer discretionary stocks.

As I noted recently in my blog the global recession seems to be re-defining the ground rules for many branded products and the switch to generics is taking its toll on companies that have spent years developing global brands and franchises.

IYT  iShares Dow Jones Transportation Average  

The Dow Jones Transport Index (DJT) sliced through the 3000 region some weeks ago and now appears to he headed towards the 2000 level. One instrument for playing the short side - on an intermediate term basis - would be use the sector fund IYT if it can be borrowed from your broker.