Daily Form May 27, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
WEDNESDAY MAY 27, 2009       03:11 ET

SPY appears to be headed towards a test of recent highs in the region of 93. A successful re-challenge of last Thursday’s failure at 92.8 would be the first step to re-energizing the bullish enthusiasm which has taken this market relentlessly higher since the March low and the real prize in the near term would be to take out the 93.78 intraday high from early January which would also see the index above its 200 day EMA for the first time in a year.

While many investors are now extremely focused on the equities markets the Treasury and currency markets are approaching critical levels as discussed below.

The Hang Seng Index (HSI) surged by almost 5% in Wednesday’s session and almost broke above the 18000 level. Reviewing the longer term charts there is some resistance to overcome in the region between 18000 and 20000 but given the parabolic dynamics in place one cannot rule out 20000 at which there is a much greater barrier of overhead supply to contend with.

As I suggested yesterday my main focus this week is on the Treasury market as there is a massive supply to clear and in particular the 7 year instruments may face the biggest challenge.

The yield on the five year note has broken above an upward wedge pattern and it will be useful to monitor this chart at the end of the week to see if the bearish pattern for Treasury prices is confirmed.


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.
For full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

IEF  iShares Lehman 7-10 Year Treasury  

IEF, tracks the 7-10 year Treasury curve, is the inverse pattern to the 5 year yield chart shown above and as indicated previously a failure to rally following the forthcoming auctions would be a disturbing development for public debt financing.

UDN  PowerShares DB US Dollar Index Bearish  

UDN, which enables one to be long and have a positive payoff if the US Dollar index declines has approached a key test at the peak seen in mid December following the initial announcements by the Fed of its policy of quantitative easing.