Daily Form October 28, 2009

Inter-market Technical Analysis Using Algorithmic Pattern Detection

WEDNESDAY OCTOBER 28, 2009       06:37 ET

There are signs that the carry trade unwind is creating some seismic foreshocks. The Russell 2000 (RUT) acted as the canary in the coal mine over the last few weeks and sent a clear message that the high beta stocks were not the place to be as the prospects of a correction began to gather momentum.
The target on the chart below of 550 would suggest that the correction would be in the order of about ten percent from the recent highs. However there is a plausible case being promoted by some EWT advocates that a corrective wave C might be rearing its ugly head. If the latter is the case, and it seems a little premature to be calling that in my humble opinion, then the outlook for equities, over the longer term, most definitely is not rosy.

Some readers may have wondered why the Australian dollar has featured prominently in this column over the last few weeks. My suggestion is that the rolling over of the carry trade pairs - AUD/USD and AUD/JPY in particular could be pointing to a turn of the tide with the implicit message that the easy money that has been made this summer within the emerging markets and commodities could be drawing to a close.

The main motif on many charts is the breaking of some reasonably prominent trend lines. The 4 hour chart of Germany’s DAX as of Wednesday morning trading reveals just such a break and reviewing potential levels of support it is not difficult to once again - as with the diagnosis of the Russell 2000 chart - see the capacity for a 10% correction from the mid-October highs

The Nikkei 225 (N225) put in a valiant effort to regain its foothold above the breakdown level alluded to here a couple of weeks ago but with strengthening of the yen the near term outlook is for a retreat towards a re-testing of the early October lows near 9700


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

AKS  AK Steel Holding Corporation  

AK Steel Holding (AKS), also mentioned here about two weeks ago as looking vulnerable was also very weak in the steel sector

X  United States Steel Corp.  

US Steel (X), which was mentioned here last week was a notable casualty in yesterday's sell-off on very substantial volume and there is no obvious level of chart support for some considerable distance.

COW  iPath DJ AIG Livestock ETN  

Here are comments regarding one of the long selections made here this month

The exchange traded fund, COW, which tracks the livestock sector, could be preparing to emerge from an extended recovery process and even if the immediate outlook is uncertain the chart patterns suggest that, in the medium term, this could make further upside progress.