Daily Form November 17, 2009

Inter-market Technical Analysis using algorithmic pattern detection

TUESDAY NOVEMBER 17, 2009       07:25 ET

The Nasdaq Composite (IXIC) surpassed expectations expressed here yesterday in not only challenging the 2190 level but pushing above 2200 intraday and closing at 2197. The retail sales data provided exactly the excuse to move equities higher, and despite some apprehensiveness ahead of the Bernanke speech at the Economic Club of New York, the bulls largely controlled the day’s agenda.
Meanwhile the US dollar ended at session lows, as tracked by the exchange traded fund, UUP, and Dr. Bernanke’s remarks about a strong dollar policy without any specific promise to support the currency appear to have left doubts that this stated policy is sincerely held. Ultimately there is a suspicion that it is not.

Here are my comments from my daily blog on the matter:

The following two sentences from Ben Bernanke’s address at the Economic Club of New York on November 16, 2009 are complete gems of obscurantism.

We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

There is no specific articulation of a commitment to support the US dollar per se but rather an opinion being expressed that dollar strength will be a fortunate by-product resulting from the pursuit of the Fed’s domestically focused dual mandate.

Does this statement reflect sufficient duty of care from the custodian of the global reserve currency?

Unlike the Ichimoku charts I reviewed yesterday the exact converse is true for this chart in that rather than being supported when dropping down to a cloud formation, UUP has been unable to make any meaningful piercing of the cloud above since April.

The Nikkei 225 lost ground overnight and is just barely hanging on to the 9700 level in a chart that shows all kinds of negative characteristics.

I am struck by the chart below showing the yield on the five year US Treasury note which came to rest at the pivotal 2.2% yield level after yesterday’s session. The left hand of the chart (indicated by the letter A) is the inverse almost exactly of the right hand of the chart (B).
At least foreign buyers of US Treasuries are being rewarded at present in being able to purchase dollar denominated debt at bargain basement prices, but there must be some concerns that those prices could become fire sale prices at a later date.

In European trading there are some interesting moves in FX - mainly focused on cross rate trading (especially the EURGBP rate) - but there is some evidence that the dollar is perking up against the Swiss Franc.
I am hesitant to make too much of this but if the downward trend-line was to be decisively broken in coming sessions there just might be some bite behind the jawboning of central bankers, including Monsieur Trichet who would love to see a stronger dollar.
However, until there are some clear technical signs showing a break down in the Australian dollar and the Euro, the default positioning adopted by the large carry traders is to keep exploring lower levels on the US currency.