Daily Form March 31, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
TUESDAY MARCH 31, 2009       06:45 ET

Yesterday’s commentary anticipated the drop in the S&P 500 (SPX) down to the 780 level. While the chart below shows that the critical break down suffered yesterday tips the presumption back in favor of an eventual retreat to lower levels, there are some mitigating factors to consider.

Firstly, the fact that the index managed to bounce exactly off the 780 level and secondly the overall low volumes will restrain me from playing the short side in today’s session.

Turnaround Tuesdays have been in evidence throughout this bear market and one could easily be mounted after yesterday’s rout.

The bearish case would become more compelling if the 766 level (marked on the chart and the intraday low from March 20th) was to break and in general terms if there is evidence that volume picks up on renewed selling in coming days.

The FTSE is recovering in trading on Tuesday morning but while it remains below the 3900 level the chart pattern is suggesting further weakness ahead.

A close above 4060 would be required to turn me more bullish on this index.

The KBW Banking Index (BKX) gave back ten percent yesterday with double digit percentage falls being registered in Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC).

The rupture of the upward trendline from the early March low is certainly a cause for concern but for the many reasons which I have adduced over the last few weeks I would be surprised to see us head back to new lows for this sector.


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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HYG  iShares High Yield Corporate Bond  

HYG, which tracks the high yield corporate bond market has also broken below key trendlines and notably, in this instance, this has been accompanied by a pick up in volume.

Government statistics and anecdotal evidence are pointing to increasing deterioration in many regions of the global economy, with perhaps the US seeing some signs of a respite, but on balance this suggests that default levels on junk bonds will be towards the upper end of the increasingly more gloomy forecasts for this asset class.

MS  Morgan Stanley  

Last Thursday I discussed the topping formations on both Goldman Sachs (GS) and Morgan Stanley (MS). Both stocks have sold off since but the better place to have been from the short side would have been Morgan Stanley.

Notice on the chart below that the volume has been subdued on the sell off and there is support below yesterday’s close at $21 level which coincides with the 50 day moving average.

AXP  American Express Company  

Here are my comments from last Friday’s column regarding American Express

The hourly chart for American Express (AXP) looks over-extended and there is a negative money flow divergence.

There is the potential here for a pullback to the $13 level.

The stock pulled back to the $12.80 level in yesterday’s session and could have delivered a 15% plus return from going short on Friday’s open.

DIG  Ultra Dow Jones Oil and Gas Index  

DIG which tracks the energy sector and is based on the Ultra Dow Jones Oil and Gas Index is moving very much in sync with US equities as revealed in the chart below.

The close was below both the 20 and 50 day moving averages and the triangular pattern is clearly broken.

Once again the volume was light yesterday although the turn down in money flow is more acute in this sector than in many other sector based ETF’s.