Daily Form April 2, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY APRIL 2, 2009       06:07 ET

Markets have rallied strongly on Thursday - with the Hang Seng as the standout performer with a 7.4% gain. Several factors are being cited for the move (although the technical conditions were also constructive after retreats to key support levels especially in Hong Kong). There are certain signs that in the US the economy may be bottoming and even in key markets which entered recession later than the US there are signs that the downturn is not getting worse - at least those of a more cheerful disposition are claiming to see them. The G20 has not (yet) disappointed with a major disagreement and there are perceived to be positive implications from the possible mark to market (M2M) deliberations to be announced in the US today.

The S&P 500 seems certain to head back to 835 today and who knows with some real aggressive action by the bulls we could start moving to the next major testing zone around 875.

As this is being written the G20 world leaders are trying to thrash out the best communique for release later this afternoon (London time)

Some thoughts on the G20 from yesterday’s blog

There has been a lot of commentary on whether Nicolas Sarkozy’s threat to walk out of the G20 summit is just "grandstanding" for his domestic constituents or whether it reflects a more serious threat.

Frankly it seems rather dubious whether even a united G20 communique amounts to a whole lot but there are important precedents to the French distaste for Anglo-Saxon finance.

In the 1960’s Charles de Gaulle was constantly banging heads with the British and the Americans on their financial prudence. The following article from the archives of Time magazine in 1965 gives the flavor of these disputes and is especially relevant in the context of the current discussions about a new foundation for a global reserve currency.

My own view is that the suspicions about the integrity of the US dollar are not going to be easily appeased and even if there is no serious debate about the matter at the G20 summit in London tomorrow this issue is not going away.

The Hang Seng Index in Hong Kong posted a 7.4% gain in Asian trading on Thursday. It has made a very strong recovery since late last week and, as anticipated found support close to the intersection of two key moving averages - the 20 and 50 day EMA.

The interesting chart configuration which is developing is of a slightly downward slanting W formation which could be pointing to the fact that the tone of the market in coming months could be one of further fits and starts - but with a sideways bias.

The Nikkei 225 joined in the merriment on Thursday and notched up a 4.4% gain.

The chart shows that the index will face strong overhead resistance at the early January high around the 9200 level.

European equity investors are showing plenty of enthusiasm in trading on Thursday morning. The UK’s FTSE index has made a rather striking reversal over the last few sessions.

Just last Thursday the index dropped sharply to the 3760 level but with a 3% plus move already in place today the index could well be on course for its first close above the 50% retracement level from strategic highs and lows observed over the last several months.

The swing high has been chosen as 4640 which was a key level in early November 2008 and also marked the top after the end of year/early January level and the swing intraday low was taken as 3564 seen on March 9th.

The next probable target for the bulls would be the 4200 level but I would not expect us to slice through that without a struggle.

Traders in the UK seem to have been cheered by reports from the Nationwide Building Society showing that for the first time in 16 months there was an increase in home prices. Now the guessing game is going to be how much have markets already discounted of the first green shoots since their moves off the March lows?


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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TAN  Global Solar Energy Index ETF  

I will be looking for an entry point on the long side for TAN, an exchange traded fund which tracks the Global Solar Energy Index.

There is a very well defined bull flag and this sector fund could be headed back towards $9.

ACWI  iShares MSCI ACWI Index  

The investment vehicle which tracks the iShares MSCI ACWI Index is pointing towards a potential in today’s session for a break above a major downward trendline through the highs extending back into last year.

Also notable was the very large volume that came into the market yesterday suggesting that some of the larger funds are placing bets that the economic recovery story is gathering momentum.

As suggested by the chart annotations the $33-34 area would be a target if you are feeling optimistic and adventurous about the beginnings of recovery in the emerging markets.

BKF  iShares MSCI BRIC Index  

The MSCI Bric fund, BKF, also saw above average volume yesterday but, in line with some other indices discussed, the fund faces a key challenge at $28 - the early January high.