Daily Form August 18, 2009

Detecting Profitable Patterns For Active Traders

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

TUESDAY AUGUST 18, 2009       06:15 ET

After the series of candlesticks indicating decision avoidance as the Nasdaq 100 (NDX) approached the 50% retracement level the pattern resolved itself yesterday with a significant gap move downwards.
Based on the formations seen on the chart a retreat to the 1500 level on this indeed would seem like a realistic intermediate term target.

The Russell 2000 (RUT) reveals a breakdown from a wedge pattern which suggests that a trend inflection has been reached. It may be that the index will move sideways as did the general market in May following similar patterns seen on other charts but in the intermediate term a more prolonged correction seems to be the more likely scenario. A retreat to the 530 area where the 50 day EMA coincides with other support/resistance levels visible on the chart may well be the first target for the bears.

GBP/USD, the currency pair of sterling against the US dollar provided the sell signal on the daily Ichimoku chart in yesterday’s session. It is not uncommon however to see a pullback and respite rally before the downward move gathers momentum.
The intermediate term target would be another test of the $1.60 level.

The VIX posted one of its largest green candlesticks for some time, and is now poised to break above a descending trend-line which extends back to the March recovery.


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

ERTS  Electronic Arts Inc.  

One reader recently contacted me and suggested that the macro focus of the commentary was commendable but that more specific stock recommendations would be useful. I have been less focused on individual equities recently because I have found the macro picture so fascinating and believe that there are some forces at work in the US equities arena which make me somewhat cautious regarding a number of traditional TA indicators.
Having said that I shall just draw attention to one of the specific suggestions made here last week.

Electronic Arts (ERTS) sold off on substantial volume last week and could hit resistance at the $21 price where two moving averages have converged.

DBB  PowerShares DB Base Metals  

Another specific recommendation made in my commentary last Wednesday could have been profitable

DBB, a sector fund which tracks base metals, looks technically vulnerable.

HYG  iShares High Yield Corporate Bond  

The following recommendation was made in last Tuesday's column and could have provided generous profits.

HYG, a sector fund which tracks high yield debt could correct in the medium term to the level of support indicated on the chart.

BIK  SPDR S and P BRIC 40  

The following also appeared in last Tuesday's column

BIK, an exchange traded funds which tracks the BRIC emerging market sector, has been revealing for some negative divergences and increasingly there is case which could validate a double topping pattern. Having said that the volumes are thin at present and with many looking to buy dips in all kinds of exotic markets there could be a further wave of ebullience so I suspect that there will be a better time to position oneself for what could be a really nasty sell-off in emerging markets when the larger cap US indices do decide to take their well earned rest.

XRT  SPDR Retail ETF  

XRT, the SPDR version of a sector fund which tracks retail, seems headed towards $29.