Daily Form September 18, 2009

Detecting Profitable Patterns For Active Traders

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

FRIDAY SEPTEMBER 18, 2009       06:47 ET

The Shanghai market dropped back by more than 3% in Asian trading and the daily chart is revealing an interesting pattern as far as wave counts are concerned.
I am not a convinced follower of any particular school relating to waves - their duration, magnitude and how to count them in a non-ambiguous fashion - but do look for some of the more obvious patterns on major charts, especially those of global equity indices.
The Shanghai market would appear to be in the second wave of a three wave corrective pattern and I have illustrated how things might progress from here.
If this analysis is correct the real test for the market will be to monitor closely how the pattern evolves at the end of the third minor wave of the second major wave.

The FTSE index is now at a fairly pivotal level in relation to the weekly chart patterns with chart resistance clearly visible starting at the 5200 region all the way up to 5470.
Once again to employ some wave terminology - we may be at the end of wave 3 from the March low (keeping things as simple as possible and not even attempting to place this in accordance with any major Elliott longer time frame wave structure).
The magnitude of the third wave at this point is exactly 2.618 times the second or corrective wave which itself represented a 38% retracement of the first impulse wave off the March low.
If this diagnosis is correct then the achievement of a key fibonacci extension plus the chart resistance indicated and also the coincidence of the 200 week EMA, would pose a reasonable probability that the index is now entering a zone where a fourth and corrective wave could be imminent.

The daily chart for GBP/USD shows that essentially this currency pair have been range bound for several months with a $1.60 lower boundary and a $1.66 (approximate) upper boundary. There was the break above the boundary in early August but this was rejected at the strategic $1.70 level and a more recent attempt to break through again met resistance at $1.67.
The trendlines indicate that the price action in Asian trading overnight saw the uptrend broken and there would be a presumption that sterling is header back towards the lower boundary.
If however there was a turnaround before the $1.6140 area this would set up two higher lows on the re-test and would strengthen the case that sterling will make another attempt to break through the $1.66 level and would have stronger dynamics to revisit and possibly take out the $1.70 resistance level.
The alternative scenario, which would be far more bearish for sterling would be to see a revisit the $1.60 level, and not to find keen buying support.
My suspicion is that the time frame on these two scenarios is imminent and one should have a clearer picture on this pair during next week’s trading.

The longer term weekly chart for the EUR/USD shows that the Eurozone currency is at a cross roads in terms of chart resistance and fibonacci retracement.
In Asian trading on Friday a trendline through the lows on the 4 hour charts was violated but during European trading this morning the currency is rallying back to regain a position above the $1.47 level.
The question that is lingering in terms of wave patterns since the beginning of September is whether we are about to enter a corrective wave 4 after an extended wave three which brought us up to the $1.48 level or whether we may already have completed wave five.
If the currency fails to close above $1.4640 by the US close tonight the probability would favor the second scenario which would suggest that a more serious correction could begin to unfold next week.


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

C  Citigroup Inc.  

Citigroup (C) has two mini bear flag patterns as well as an Ichimoku sell signal on the daily chart.

POT  Potash Corp. of Saskatchewan Inc  

Potash (POT) has a fairly well defined cup and handle pattern and it would be worth monitoring the $102 level for a possible breakaway event.