Daily Form July 21, 2009

Detecting Profitable Patterns For Active Traders

Successful trading without having to be right about the underlying market direction

TUESDAY JULY 21, 2009       07:12 ET

Back in the spring I was using the fibonacci grid on the S&P 500 cash index showing the 1000 level as the upper band and the 666 level as the low boundary in order to situate some price targets for the recovery process that began in March. I had chosen the 1000 level then as it represented a key resistance level back in early November 2008 when the index tried but failed to pull out of its October plunge and managed a strong reversal with one close above 1000 which subsequently failed to hold.
Two key retracement levels which were identified under that analysis were the 795 level (38%) and the 875 level (62%).
Technically oriented trading desks (and aren’t they all nowadays) decided to re-test the 875 level from above a couple of weeks ago and, with that test successfully behind it and the index now poised to take out the early January high, the 1000 level is starting to look like the next plausible target in coming sessions.

Sterling has come under selling pressure in Asian and European trading today and is moving back towards its weakest recent levels in its narrow range against the euro as well as falling below the $1.64 level against the US dollar this morning.
The following analysis shows the combination of an Ichimoku and momentum analysis of the GBPUSD exchange rate using a 30 minute time frame.
The sell signal is marked on the right hand side of the chart which was prompted by several technical signals.
1. The first was the Tenkan Sen/Kijun Sen Cross in which the 9 period line pierced the 26 period line from above with the appropriate cloud positioning.
2. The RSI chart is revealing a clear negative divergence
3. The MACD chart (which can sometimes be useful in the shorter time frames for forex trading) also is registering a negative divergence.
Also indicated on the left hand chart would be almost the converse of the above (except not really evident on the MACD segment) where a buy signal for sterling was given during trading on July 17th.
In both cases the trade could have been entered with an attractive reward/risk ratio. This morning’s sell signal yielded more than 120 pips within three hours, with less than a 50 pip risk on a straightforwardly positioned stop loss level.

The US Dollar index is approaching a level where some support (perhaps just temporary) should be expected as illustrated on the UUP chart below. The key cross rates to be watching for a potential turn in the fortunes of the dollar today will be the USDCHF level which is also touching the most recent lows as this is being written as well as the EURUSD which is still having difficulty breaking above the $1.43 level.


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 a more comprehensive listing of price formations detected by our pattern recognition algorithms please visit TradeWithForm