Daily Form June 8, 2009

Detecting Profitable Patterns For Active Traders
Trade successfully without having to be right about the underlying market direction
MONDAY JUNE 8, 2009       05:25 ET

The Russell 2000 (RUT) has tagged the top of the rising wedge channel indicated which increases the likelihood that there could be a near term consolidation and that a potential test of the lower boundary of the channel may be required in the coming sessions.

The shorter and medium term end of the Treasury curve is where the action has moved and this was anticipated in last week’s discussion (see below).

The yield on the five year Treasury note has moved remarkably rapidly but a further move up to the 3% level would seem to be on this week’s agenda.

Here are my comments from last Tuesday’s Daily Form

Yields on the five year note saw the largest relative jump yesterday and I would expect that as long as traders in equities and commodities continue to push the reflation agenda the market’s focus will move increasingly towards the shorter term securities, in particular 2 year notes.

Re-reading that comment today it would seem that the reflation traders are winning and that in fact the Fed blinked first, and it was revealed in Bernanke’s remarks in Washington last week. Whether things will continue to play out well for the reflation traders and badly for those hoping to refi mortgages is less clear and it may be that the Fed (and equity markets) will decide that even if emerging markets deserve a bid the US consumer is still tapped out.

The Euro has retreated after failing to penetrate the highs seen last December and is now at the bottom of the channel indicated. A key level that will probably be tested in today’s session and where one would expect some buying to emerge is around $1.37 which coincides with the 50 day EMA and the mid March highs.


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

SHY  iShares Lehman 1-3 Year Treasury Bond  

In Friday’s trading the tension between the short end and long end of the US Treasury spectrum saw some rather dramatic adjustments Surges at both the long and short end were seen but it was the two year note which was the biggest surprise as it jumped almost 30 basis points. The chart above is an ETF which tracks the prices of 1-3 Year Treasuries (SHY) and the large gap down in Friday’s session indicates the magnitude of the surge in yields.

There were also indications from the Fed Funds futures that traders are now factoring in increasing probability for rate hikes from September onwards.

UUP  PowerShares DB US Dollar Index Bullish  

UUP, the ETF which allows one to profit from recovery of the US dollar against a basket of currencies, would seem to have further upside potential in the near term.