Daily Form April 23, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
THURSDAY APRIL 23, 2009       06:42 ET

The shooting star pattern on the chart for the Nasdaq Composite (IXIC) reveals a formidable hurdle being faced by the broad, primarily non-financial equities market at the January high. As discussed yesterday the top 100 stocks in this composite index by market capitalization are continuing to outshine but the breadth divergence is some cause for concern.

As drawn on the chart the very steep trendline up from the early March low has already technically been crossed and if we were to see another violation in coming sessions this would underline the concern I have that the upward momentum bias which has been in evidence for the last six weeks is running out of stream.

Certainly the intraday price behavior was sloppy yesterday and there is still a lot of spinning come from the US Treasury about the state of the banks.

The UK government presented its annual budget to Parliament yesterday and confirmed the dire state of the public finances. For those interested in a personal reflection on the budget (not a detailed summary but more impressionistic) there is the following piece at my blog site.

There is a growing sense in the UK now that the tide has turned politically and the current Labor government will be replaced at the next election which has to be held within one year.

Looking at the FTSE from an Ichimoku perspective it is still of concern that the index has been unable to break free from the pink cloud on the chart unlike many other global indices.

Yields on the ten year US Treasury note have risen almost all the way back to the three percent level which they were at prior to the Fed’s announcements about quantitative easing. Some are even questioning how much the Fed is even committed to its announced targets of purchasing Treasuries, but one would suspect that the folks at PIMCO would be getting rather antsy if yields kept moving northwards of 3%.

Chairman Bernanke and Mr. Geithner cannot affored to annoy Bill Gross and his chums so perhaps we should expect some new announcement relating to QE and a retreat on yields.


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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PPH  Pharmaceutical HOLDRS  

Yesterday I drew attention to a bearish technical picture for XLV an ETF which tracks Health Care stocks and today I thought it worth showing an even more bearish perspective on PPH which tracks the pharmaceuticals.

FXB  Currency Shares British Pound  

As I discussed earlier this week the chart for FXB revealed how the British pound failed at the $1.50 level and headed down to the $1.45 level as anticipated.

Stepping back on the longer term view what is remarkable about the Ichimoku view on the currency is bearishness of this currency’s direction as reflected in the complete failure for months to move above the pink cloud.

The UK could be headed for help from the IMF although the government would strenuously deny this - in such a circumstance the cross rate to the dollar and the euro could have a lot further to fall.

This may be of more interest to UK readers as there was a lot of discussion in the post budget debate yesterday as to how the Chancellor came up with his incredibly optimistic forecast of 3.5% annual growth from 2011. Was it the result of sophisticated scenario analysis on the UK Treasury’s high powered computers?

Well perhaps not.

Chancellor Darling mentioned, in interviews today, that his expectation is that the world economy will double in the next 20 years - just where he comes up with that number was not explained.

However if you quickly run the following on your calculator or Excel 1.035^20 it comes out as close to the desired 2 or doubling as you could hope for.

Probably just a coincidence.

SLV  iShares Silver Trust  

The chart for SLV, which is the exchange traded fund for silver, shows a bearish flag developing as price slips under the green cloud. Given also the bearish volume patterns it would be worth looking for entry points on the short side in today’s session.