Inter-market Technical Analysis Using Algorithmic Pattern Detection
TUESDAY OCTOBER 13, 2009 05:39 ET
The four hour chart is more traditionally used by foreign exchange traders but can also be useful for providing a slightly different perspective on equity indices.
The chart for the S&P 500 from yesterday, using this unorthodox time frame, clearly reveals what are signs of growing negative divergences from a momentum perspective.
This may not necessarily result in any serious pullback behavior as the market can drift sideways allowing the momentum divergence to reconfigure itself in a less problematic appearance.
The DJIA challenge of 10,000 looks on the cards for later this week and there should be major headlines in the popular press which (ironically) may be seen as the buying signal for many small investors who have been shunning stocks for the past two years.
As discussed here last Friday the AUD/CHF currency pair continues to astound but the constriction of the Bollinger bands is signaling that a major move lies ahead.
One of my favorite instruments to trade is the GBP/USD currency pair - and usually it is from the sell side.
Sterling is displaying a descending wedge pattern, and the last time it was as evident in multiple time frames was at the beginning of August 2008 whereupon it began its rapid descent.
It looks as though we are headed to the low $1.50’s again.
Last Friday I suggested the exchange traded fund, TBT, which tracks inversely the prices of long term Treasuries - or in other words it is a proxy for yields. The timing was good as Friday alone would have produced a four percent plus return off the opening price.
There was little volume yesterday due to the Columbus Day holiday but the action on the long bond as seen below suggests that the cash instrument could meet resistance from the 50 day EMA as well as the downtrend shown on the chart.
TRADE OPPORTUNITIES/SETUPS FOR TUESDAY OCTOBER 13, 2009
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
TBT Ultra Short Lehman 20 Plus ProShares
TBT will remain on the intermediate term Watch List although after exiting on Friday's close there may be no need to rush back in just yet.
LQD iShares iBoxx Invest Grade Corp Bond
I mentioned a short recommendation for LQD, a fund which tracks investment grade corporate bonds, more than a week ago and the drop below all three moving averages and trendline support which is evident on the chart pattern suggests that monitoring for a pullback with eventual resumption of the downward move is likely.
ACI Arch Coal Inc
Arch Coal (ACI) registered a tiny gravestone doji star at a multi-period high and there are some other suggestions from the MACD and money flow chart that it may have touched an inflection point in yesterday's session.