Daily Form April 29, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY APRIL 29, 2009       03:19 ET

The doji star formation on the chart for the S&P 500 (SPX) indicates a market which is tentatively searching for directional cues.

On the one hand the fact that traders seem to be able to digest a lot of worrying news - about the possibility of a flu pandemic (although at this stage there are some signs that the disease may not be as virulent as originally thought - but only time will tell) to the realization that Citigroup (C) and Bank of America (BAC) will require additional capital which, it appears, will not be provided from the public sector TARP which is now running low of funds.

The pattern on the chart suggests that a bearish flag channel is evolving with clear resistance still at the 875 level. I still expect the 935 level from early January to be a likely intermediate term target and it is more than conceivable that the market could surprise with a break through resistance to confound those who are sensing that a retrenchment is imminent.

The Nasdaq 100 (NDX) appears to be stalling at a chart level where resistance is to be expected with candlestick patterns that could be signalling a potential inflection point.

Supply is weighing on the Treasury market and yields across the spectrum moved up yesterday. This was especially noteworthy at the long end of the yield curve as the 30 year bond yield moved up to levels not seen since last November.

Closing with a yield just below 4% the chart shows that a large gap from November 19th could be in the process of being filled and a move back above the four percent threshold will add concerns to the Fed and US Treasury about their continued ability to navigate their way through the massive re-funding operations that are now required to fund the deficit and structural US public debt.

Monitoring the action in the Treasury complex will be at the top of my agenda in the next few sessions as further evidence of deficient demand for coupons with a three handle will be a worrying development for the policy mentors - especially Larry Summers appears to be the most optimistic of steering the recovery through a benign interest rate environment.

One of the reasons why I have begun to show Ichimoku charts in this column (I have been following them for some time in my own work) is that they convey quite clearly the critical price zones for an asset.

The euro is still within the green cloud which suggests that while the chart has technically negative characteristics, it would only be a decisive drop out of the green cloud that would confirm a longer term bearish phase ahead for the European currency.

At present the $1.30 cross rate with the dollar seems to be a strong attractor and asset allocators seem not to be anxious to reveal any great desire to challenge this "comfort zone".


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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TLT  iShares Lehman 20+ Year Treas Bond  

TLT, tracks the longest maturity Treasury bond prices, and as the ETF chart which tracks the price of 20 year plus instruments indicates this is where the most weakness is being felt in the sector.

There is an inverse version, TBT, available for those who want to exploit this weakness in yields but it does have two to one leverage and its technical pattern is not quite so compelling as the one for the actual prices of longer dated US government debt.

IEF  iShares Lehman 7-10 Year Treasury  

IEF, tracks the 7-10 year Treasury curve, and as can be seen in comparison to the TLT chart the pattern is not yet indicating a break down but a drop below the base line to the descending wedge, which more or less corresponds to a clear break away from the three percent yield on the 10 year note, could also be a harbinger of looming problems for Treasury auctions.