Daily Form March 25, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY MARCH 25, 2009       03:32 ET

The S&P 500 Cash Index (SPX) stalled after Monday’s surge and the index gave back 2% with a close at 806. Volume across the equity indices was subdued and there would be a risk in over-interpreting yesterday’s pullback in too negative a fashion.

As the chart illustrates the recovery off the early March low has been too much in the form of V shape and to that extent is suspect.

However within the overall context of a bear market rally it seems unlikely that index traders will not be targeting a serious challenge to the 840-860 area which clearly represents a major area of price congestion and resistance.

Amongst the overnight news the following report from Bloomberg caught my eye

Japan’s exports plunged a record 49.4 percent in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics.

Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.

The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months...

After the announcement last week of Quantitative Easing (yes, that was only last week!) the yield on the Five Year Treasury Note (FVX) dropped by an unprecedented 24% in one session.

The chart below reveals that the yield has pulled back since but will soon encounter resumed downward pressure especially as bond prices are going to be supported by actions beginning today as the Federal Reserve will be purchasing Treasuries in the 2-7 year maturity spectrum.

The exchange traded fund which allows one to take an inverse position with respect to the US Dollar Index (UDN) is revealing signs of a bear flag formation as the price moves back towards the 25 level. Despite a lackluster showing by the euro in recent sessions there could be an attempt by traders to focus attention on the world’s reserve currency to coincide with next week’s G20 meeting.

According to a number of news reports appearing yesterday the head of the Chinese central bank is tabling a document for discussion at next week’s G20 meeting in London to examine the possibilities of replacing the US Dollar as the world’s reserve currency. The idea also has support from the Russians according to the article.

The Chinese document may turn out to be just high concept academic waffle but if the idea gains traction it could be really unsettling for Tim Geithner, Ben Bernanke et al.