Daily Form February 26, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY FEBRUARY 26, 2010       06:39 ET




In yesterday’s US trading the first part of the session was in effect a well orchestrated ambush by the bears to spook the prop trading desks and funds which have been playing the reflation/cyclical recovery theme.
Weakness in Europe from more abysmal data in the UK relating to very weak business investment, ongoing headaches about Greece and a plunge of 2 cents in sterling as well as several other currency pairs testing fairly critical levels was also infused with worst than expected unemployment claims in the US.
The result was a large opening gap downwards which brought the S&P 500 index down to test key support at the 38% retracement level of the 2010 swing high/low.
Using the 240 minute chart it can easily be seen how the second half of the session showed an almost perfect technical recovery to bring the index back above the 50% level.
In reviewing the coincidental levels of the Ichimoku pink cloud boundaries, the customary levels on the fibonacci grid, and the rather remarkable reversal in the second half, I find it hard to resist the conclusion that the US equity market is more or less completely dominated by algorithmic trading programs predicated upon exploring the edges of market mayhem and then mounting last minute rescues.
It reinforces my view that there is little to be gained, for the time being, in position trading this index (i.e. holding on to positions overnight) but rather going with the intraday flow and reversing when key technical levels (clouds and fib levels) are tagged.



To underline the analysis provided above there is a remarkable similarity between the S&P 500 4 hour chart and that for XLF, the exchange traded sector fund for financial services.
In particular notice how the top of the pink cloud on the 240 minute chart coincides exactly with the 62% retracement level and the 38% retracement level with the base of the cloud.
As we are right in the middle of this zone with a bias towards a test of the upside it would also be advisable to wait until this gridlock is broken - one way or the other - before trading this fund aggressively.



Earlier in the week I commented that I could sense that the US dollar rally was becoming over extended and pointed to the key levels on USD/CHF. As this is being written the dollar has retreated to the base of the cloud as indicated, and after yesterday’s firm attack designed to break certain support levels on the AUD, JPY and EUR seems to have temporarily failed I would suggest that today’s action in US/Swiss is once again where to get one cues for the near term direction of the US currency.
I had expected the dollar to make it to 1.10 but it did spike up to 1.09 in recent sessions and that may be the background for some consolidation before renewed progress for the greenback.



Sometimes one cannot resist saying I told you so - here are comments from a week ago.

The economic data coming out of the UK is unrelentingly abysmal...
In some quarters, there is an atmosphere of nonchalance and unreality about the current predicament facing the UK government’s balance sheet - which is just as bad as that of Greece but where pre-election spin and ostrich economic policy are lulling a domestic audience into a false sense that it will all be managed by the financial technocrats.
External investors are far less sanguine and as the long term chart for GBP/USD reveals sterling is losing its grip with hundreds of pips of gains ahead for those that want to sell this currency pair.

I am tempted to say that longer term GBP/USD will break below $1.50, but with this currency pair, remarkable drops can occur even while taking a comfort break.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY FEBRUARY 26, 2010


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





EUR/GBP    

Figures released in the UK this morning showed that the Q4, 2009 GDP figure was revised from a 0.1% gain to a slightly better 0.3% gain. I remarked, somewhat tongue in cheek, earlier that Gordon Brown might just see this as providing a tiny window of good news (until the next adjustment comes out which could see the number revised back down again) and decide to call for an earlier election than currently projected for May.

Not that I would claim to have any insight into the minds of politicians, something about which I am not alarmed at all, but their judgments and ability to misread most things does provide some of the more amusing distractions in the current rather somber climate, as this article from the BBC reveals:


Greek Deputy Prime Minister Theodoros Pangalos has accused Germany of failing to compensate Greece for Nazi occupation during World War II.

Mr Pangalos made the remarks during a wide-ranging BBC interview about Greece's financial difficulties.

"They [the Nazis] took away the Greek gold that was in the Bank of Greece, they took away the Greek money and they never gave it back," he said.

Germany has rejected the allegations, describing them as "not helpful"


How does this relate to the chart below for EUR/GBP? This was also a question posed to me by a reader via Twitter earlier.
The break above the pink cloud at the 0.89 level for the euro against sterling is I believe indicative of a longer term bullish or long position for EUR/GBP. Simply translated, in the current context, means that I believe that while both the euro and sterling will go lower against the dollar, I believe that sterling has the capacity to outpace the euro on the downside.
I have however this morning gone flat after taking gains on the break above 0.89 as it would not be surprising to see a revisit within the cloud first.
There may not be such consolidation but I have usually found that it is better to initiate positions before there is a break above/below clouds and then to take initial or half profits at the breakout and then wait for a pullback to re-establish new positions.




EEM  iShares MSCI Emerging Markets Index  

Extending the theme developed in the first two charts of today's commentary the chart below is for the EEM sector fund which tracks the MSCI Emerging Markets Index. Once again a 240 minute version of the chart has been used and one can notice the similarity in the cloud formations and key fibonacci grid levels.
However also evident on the chart is that EEM is struggling to gain a foothold above the 38% retracement level and has also encountered resistance at the base of the cloud.
From a relative performance perspective this suggests that, contrary to much hoopla about the buoyancy of the new economies, the US indices are currently exhibiting greater relative strength than some of those markets which require a greater predisposition to adventurous risk taking.
On a spectrum of risk aversion/risk adventure it still seems the case that fund managers are playing more cautiously now than they were in the latter part of 2009 and that the deflation/weak economic recovery theme is weighing on the de-coupling thesis.



Daily Form February 24, 2010


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY FEBRUARY 24, 2010       06:39 ET




The chart for the S&P 500 index ($SPX) reveals the coincidence of key technical levels discussed here recently.
The 1110 level represents the 62% retracement of the swing high/lows for the year to date and also coincides with the top of the cloud formation on the 240 minute chart. (Used more often for FX trading, I am becoming quite a fan of the 4 hour charts for equities and indices as well)
The index has failed to penetrate the top of the pink cloud at 1110 which was exactly my intuition expressed here last week. The doji star left after yesterday’s retreat on the poor consumer confidence data is just below the 50% retracement level, also has notably slipped below the pink cloud and thirdly registered a close below the 50 period EMA as well.

While none of this is encouraging for the bulls, the candlestick pattern suggests that there is still a lot of indecision about the near term direction and as I suggested here on Monday I do not have a lot of conviction in trading this index at present. A drop below 1085 would tip the balance in favor of the short side but for now I am refraining from position trades in the broad US equity indices.



The weak consumer confidence data, and the likelihood that Chairman Bernanke’s testimony later today will reiterate the need for ZIRP (zero interest rate policy) in the near term, could keep the US dollar on the back foot during the North American trading session.
In particular, I shall be monitoring the USD/CHF chart to see whether the dollar can bounce off cloud support in the vicinity indicated by the arrow on the chart, or whether a correction in the dollar’s ascent may be looming.



The DAX failed to maintain its foothold above the 50 period EMA and, after falling out of the cloud has experienced two days of weakness. There is a key trendline through recent lows indicated on the chart, and I suspect that if this is violated we should expect to see this index re-testing the low values seen in early February.



Notice how the Australian dollar tagged the base of the cloud formation and immediately reversed.
In placing profit targets and stop loss levels I am becoming more convinced that the presence of cloud formations on daily and 240 minute charts is about the best guide that I have found. This is especially the case when there is a co-occurrence of cloud boundaries and other indicators such as volatility (Bollinger) bands and key EMA levels.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY FEBRUARY 24, 2010


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





INP  iPath MSCI India Index  

This was the comment in the newsletter for February 19th.


The India Fund (INP) is struggling to re-enter the cloud formation and looks vulnerable.





EEV  Ultra Short MSCI Emerging Market ProShares  

Another comment from February 19th's newsletter


I would not be a buyer of BRIC related sector funds at this point and when the correction resumes, which I expect to be quite soon (today?) then there is a lot of scope for further profit on the short side. For aggressive investors it might even be worth considering the sector fund EEV which is an inverse version, with two times leverage, of the MSCI Emerging Markets Index.





TUR  iShares MSCI Turkey Investable Market Index Fund  

The following comment comes from the commentary of February 17th


TUR, a sector fund which tracks Turkish equities, has a remarkably well formed bear flag pattern, but as is always the case with this pattern, patience is a virtue and the desired directional breakdown may not be immediate.





XHB  Homebuilders Select Sector SPDR  

XHB, the sector fund comprising homebuilder stocks, is showing some negative divergences.




XLP  Consumer Staples Select Sector SPDR  

XLP, which tracks consumer staples stocks, made a nominal new high in recent sessions but there was little conviction behind the move. The recent earnings report from Campbell soup indicating that its premium branded soup is not selling as well as anticipated acts as a reminder that generics in food staples are increasingly being used as substitutes where the economic recovery, such as it is, is characterized by a lack of purchasing power for a large number of mainstream consumers.



Daily Form February 23, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY FEBRUARY 23, 2010       03:22 ET




There was a late sell-off in US equities yesterday evening which saw SPY drop quite precipitously at the end of the session as revealed on the 5 minute chart below.
As suggested here last week the index has not been able to decisively push through the 62% retracement level which on the S&P 500 cash index lies at around 1110.



A similar pattern was seen on the proxy for the Russell 2000 index, IWM, although it would appear that buyers emerged in the last few minutes in conjunction with the green recovery candlesticks.



The exchange traded sector fund which tracks financial services is beginning to look vulnerable following the impressive rebound from early February weakness but as it approaches the top of the cloud formation, with rather anemic volume, there is an expectation that those playing the long side may be looking to exit the sector in the near term.



The central bank in Australia made some comments late in the trading day that interest rate policy will have a bias toward further tightening which sent the AUD/USD pair higher.
As the daily chart shows a further move ahead for the Australian dollar now has to confront a rather narrow green cloud formation - and should this prove not to be a barrier then previous multi-period highs become a possibility.
This arises within the context of the US dollar having achieved certain interim goals on the upside, including my recent target of approximately 1.10 against the Swiss franc. I shall continue my move out of long dollar positions, but will be looking for re-entry opportunities which I shall advise on in the coming newsletters.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY FEBRUARY 23, 2010


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





CPSL  China Precision Steel Inc.  

My comment yesterday that "China Precision Steel (CPSL) has a fairly straightforward pattern which may well result in a strong lift off from the current level" proved to be prescient with the stock opening one cent above the previous close and making possible an easy five percent gain on the session.




GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) also witnessed an abrupt slump in the last few minutes of trading yesterday and will be on my watch screen for possible follow through to the downside today.



Daily Form February 22, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY FEBRUARY 22, 2010       07:28 ET




In scanning charts this morning I am struck by how many key sectors are within cloud formations with slightly ambiguous technical characteristics. As a general rule it is advisable not to trade too actively under such conditions and I shall probably remain sidelined in today’s session until a clearer picture emerges.
Many indices and sectors have rallied back well from the weakness seen earlier in the month but volume has not been impressive and, as already suggested, the Ichimoku formations are not providing the guidance I would want to see.
The Russell 2000 has done an impressive job of recovery since early February and has managed to regain a foothold above the dotted trendline extension which has been marked on the daily chart below.
However the index has now peeked above the top of a cloud formation which could induce some position squaring and, not too far above Friday’s close, there is a likelihood of resistance as the index approaches the previous high from early in 2010.
As with most of the charts featured today there is a scarcity of obvious directional signals - but that in itself is worth stating.



The Nikkei 225 in Tokyo managed to mount a strong reversal in trading on Monday which completely reversed Friday’s sell-off and also produced a net 2.7% gain on the session.
As can be seen, there is chart resistance in the vicinity of 10,400 but the index could also be good for another 200 points to the top of the cloud pattern.




Germany’s DAX is still lingering near to resistance from the 50 day EMA, the upper Bollinger band and the green cloud formation and is definitely treading water in European trading as it awaits the opening of trading in the US in a few hours.



As annotated on the weekly chart for EUR/USD. the EZ currency is now constricting within a fairly tight range of around $1.38 on the upside and $1.34 on the downside.
Until the pair moves decidedly out of the green cloud I prefer to remain on the sidelines.
Longer term the technicals are pointing to lower levels for the euro currency but that may have to wait for more anxiety about the rolling over of more than 20 billion euros of Greek debt which is scheduled in the April/May time frame.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY FEBRUARY 22, 2010


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





CPSL  China Precision Steel Inc.  

China Precision Steel (CPSL) has a fairly straightforward pattern which may well result in a strong lift off from the current level.




XSD  SPDR Semiconductor ETF  

XSD, one of the sector funds which tracks the semiconductor stocks, has recovered well since early February but has now reached two potential sources of resistance - the top of the Ichimoku cloud as well as the upper volatility or Bollinger band.
However, in harmony with most comments today, I do not have sufficient conviction regarding this analysis to do anything more than look for scalping opportunities on the short side at signs of intraday resistance.



Daily Form February 19, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY FEBRUARY 19, 2010       06:16 ET




SPY tagged the 62% retracement level in yesterday’s session as volume continues to be subdued.
It remains to be seen whether the Fed’s move after the market closed yesterday in raising the discount rate will rattle US equities from a level where some pullback should be expected just from a fibonacci perspective.
Asian markets dropped on the news of the adjustment to the discount rate, but North American traders may want to prove their more independent spirit on the pretext that the market had already "discounted" the Fed’s move and that it is no big deal. The poor volume suggests that in this poker game those with the strong hands are keeping rather too quiet.



Hong Kong’s index fell more than 500 points or 2.6% and as highlighted on the chart the 20 day EMA is now crossing the 200 day EMA from above - which is not a positive development.
It still seems to me that the 19,000 level needs to be robustly tested.



Further to my comments here yesterday regarding the impending breakout for yields on the 30 year US Treasury bond and the discussion on CNBC’s chart slot within European Closing Bell I have included as more technical evidence - this time for the benchmark ten year issue - that yields look set to cross the 4% barrier soon.
The more that equities remain the asset of choice for institutional managers and HFT algorithmic shops the more that yields will have to rise to tempt capital into feeding the 800 pound gorilla that is showing no signs of going on a weight-loss program.



The economic data coming out of the UK is unrelentingly abysmal with retail sales down more than expected today and yesterday’s shock that the UK had to borrow more than £4bn in January because of weak taxation receipts and increasing payouts in benefits and public sector programs.
In some quarters, there is an atmosphere of nonchalance and unreality about the current predicament facing the UK government’s balance sheet - which is just as bad as that of Greece but where pre-election spin and ostrich economic policy are lulling a domestic audience into a false sense that it will all be managed by the financial technocrats.
External investors are far less sanguine and as the long term chart for GBP/USD reveals sterling is losing its grip with hundreds of pips of gains ahead for those that want to sell this currency pair.
This could end up with a ratings downgrade and a sterling crisis and reminds me of the classic line from Pink Floyd’s Dark Side of the Moon album --"Hanging on in quiet desperation is the English way. The time is gone, the song is over, Thought I’d something more to say.".






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY FEBRUARY 19, 2010


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





DAX    

Although Asian equities sold off in Friday's session and the dollar is continuing its advance in the European morning session, the action in European equity markets-at least of the time of writing - has been remarkably poised. Reviewing the intraday chart for Germany's DAX index there is an obvious technical barrier to overcome at the convergence of the base of the green cloud and the 50 day EMA. Moreover a bearish flag pattern is clearly evident since the large red candlesticks from early February.
The fact that the index has not yet turned down is rather intriguing and suggests that European fund managers are waiting to see just how much their US counterparts will take the Fed's move and dollar strength in their stride.
I would suggest that the DAX could fall quite precipitously if the US markets are not as stoical as some are expecting in today's session.




AUD/CHF    

AUD/CHF is moving into a region where, from a monthly Ichimoku perspective, the risk/reward profile is favoring a selling of the currency pair for position traders with a longer term perspective.




EEM  iShares MSCI Emerging Markets Index  

EEM, which tracks the MSCI Emerging Markets Index, may be more vulnerable to the evidence of continuing weakness in US job data, a rather disturbing PPI number yesterday in the US, mounting evidence of a very stretched consumer in Europe, and the first signs that the Fed are moving away from a zero interest rate policy.
Even though the longer term outlook for new Asian and Latin American markets looks distinctly more promising than that for mature economies, there is already so much good news baked into equity prices in these economies.
I would not be a buyer of BRIC related sector funds at this point and when the correction resumes, which I expect to be quite soon (today?) then there is a lot of scope for further profit on the short side. For aggressive investors it might even be worth considering the sector fund EEV which is an inverse version, with two times leverage, of the MSCI Emerging Markets Index.




INP  iPath MSCI India Index  

The India Fund (INP) is struggling to re-enter the cloud formation and looks vulnerable.




MSTR  Microstrategy Inc.  

Microstrategy (MSTR) has a technical set up which will encourage me to look for entry opportunities on the short side provided that there is not a large downward opening gap in today's session.



Daily Form February 18, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY FEBRUARY 18, 2010       06:21 ET




This afternoon I shall be doing a TA slot on CNBC’s European Closing Bell and want to spend a little time (and that is all one gets!) talking about the benefits of using the Ichimoku cloud formations, not only for generating entry signals but also for assisting in selecting suitable stop-loss levels.
I have shown the chart for SPY already this week and I find yesterday’s doji star pattern just above the 50% retracement level to be indicative of a lack of conviction on the part of equity investors in the recent rebound from the selling that began in mid January and which "appears" to have subsided.
Volume remains very subdued, the 62% retracement level indicated on the chart - and equivalent to 1110 on the cash index - suggests that the risk/reward calculus is not favoring the long side, but I would not be looking at the short side, except on an intraday scalping basis, until the index breaks back below green cloud formation.



The weekly chart for the yield on the 30 year US Treasury bond strongly suggests that an ascending wedge could be preparing to blow out to the upside. News that the Chinese central bank have become net sellers of long term US government issue as well as the added risk premium for sovereign debt in general is pointing, I would suggest, to five percent plus yields in the coming weeks.
Even if there is a reversion to the safe harbor trade when conditions in equity markets become more turbulent again, which is a scenario I still find to be probable, the risk premium required by those holding long term bonds is, in my estimation, now on an upward trajectory.
One final comment, which was prompted by an interesting piece I came across recently (I cannot recall the source exactly) is that the global inflation threat is now not from the US/European economies - which actually have more deflationary concerns - but rather from the new economies of Asia and Latin America where the middle class are just discovering the delights of consumerism. The mature economies are in danger of importing inflation rather than as in the past of benefiting from the dis-inflationary forces of the earlier stage in the globalization process.



As an excellent example of the usefulness of the Ichimoku charting techniques, yesterday’s comment here that long positions in spot gold should be exited at the $1125 level, proved to be uncannily accurate.



Reviewing the longer term daily chart for the DAX, and applying the reasoning relating to cloud formations, it is worth contemplating that the drop through the green cloud broke a clear uptrend and rebound from the base of the clouds which had been in place since April 2009.
The suggestion is that the German equity index will struggle in its recent rebound to break back into the cloud.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY FEBRUARY 18, 2010


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





USD/CHF    

The patterns on the 240 minute chart for USD/CHF provides an excellent example of two key benefits of technical analysis.
1. There is clear evidence of the support being provided, at critical junctures, by the cloud formation.
2. A fractal pattern is evident where recent retreats can best be characterized as miniature cup and handle patterns where the subsequent breakthrough the top of the cup has lead to a development of a staircase pattern.
Seen in the context of the much longer term Elliot Wave pattern which I have discussed here recently, the outlook for the Swiss franc is one of slow attrition against the dollar. Some readers have asked how best to play this kind of view that the US dollar is a buy against the Swiss currency if they are reluctant to engage in spot forex trading. There is an exchange traded fund, FXF, which provides exposure to the Swiss Franc. If one subscribes to the thesis that this is now in a bear phase one would want to short that ETF (and perhaps not pay too close attention to the daily zigs and zags).




USD/JPY    

My comment about USD/JPY in yesterday's commentary was not so clever as the yen weakened further. This was not in accordance with the bull flag interpretation which I provided for FXY (which is a long play on the yen) and this has now triggered my interest in the other side of the trade. A failed bull flag pattern is often (but not always!) a sign of impending technical weakness.
Reviewing the longer term pattern for USD/JPY, the very clear downward wedge pattern is reaching a point where there are two distinct possibilities. The first would be a break to the downside suggesting that the yen would be headed higher and into the low 80's against the US dollar. The second would be a break out for the US currency from a persistent down trend- lasting several years - against the Japanese currency.
If the second alternative comes to pass - and once again the importance of a break above the Ichimoku cloud on the weekly chart would be a major development - then the yen could be looking at a significant retreat.
From a purely technical point of view it is difficult at this stage to anticipate the direction of the eventual breakout from the apex of this wedge pattern.
From the point of view of the risk aversion trade, a serious crack in equities would lend support to the view that the yen should benefit, but the growing risks in the Japanese bond market and the messy state of its public finances could produce the real surprise which would be a loss of confidence by external investors in the Japanese currency and capital markets. Only time will tell!



Daily Form February 17, 2010


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY FEBRUARY 17, 2010       03:27 ET




Thanks to the many readers who pointed out my error from yesterday’s commentary in calling the Chinese New Year which began on Sunday - the year of the ox. The year of the ox was, in fact, terminating and we have in fact just entered the year of the tiger! I am even assured by some who contacted me that this could also be a year of good fortune.
Following on from yesterday’s discussion on the S&P 500, the index made a nice move upwards and came to rest almost exactly at the 50% fibonacci target outlined yesterday. The equivalent fibonacci targets have been superimposed on SPY, the tracking fund for the index, with the 62% level now set up as a feasible target during the remainder of this week.
The volume was very subdued and a lot more conviction will be required from the bullish side to take out further overhead resistance that lies above the cash index as it moves above the 1100 level towards a challenge of the 62% retracement at 1110.



Spot gold also performed as anticipated and, as of early European trading on Wednesday, has moved up to $1123.30 which is almost exactly the $1125 level targeted here yesterday. This would be a good point to exit the long side while the metal digests recent gains.
As with many markets yesterday the sagging dollar brought back echoes of the reflation trade which was so much in evidence in the second half of 2009 and the intermediate outlook for the precious metal will be influenced by the degree to which the US dollar retraces its recent advance.



The large number of trading desks which have been building short positions in the euro during most of 2010 were anxious to cover as the currency, which found support at the $1.35 level, as indicated on the weekly and daily Ichimoku charts, made a sharp recovery yesterday.
I shall repeat my suggestion that making further progress and breaching the $1.38 level will be a much more daunting challenge.



Also in the FX arena AUD/USD has mounted a nice rebound as anticipated here last week but the pair is approaching a level where the reward/risk ratio is no longer favorable, in my estimation.
This may not be exactly the right time to initiate new short positions but I shall be on the lookout for entry opportunities once there is evidence that US dollar correction is nearing completion.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY FEBRUARY 17, 2010


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





TAN  Global Solar Energy Index ETF  

The chart pattern for TAN, a sector fund which tracks solar energy stocks, looks constructive on the long side with evidence that the recent sell-off is attracting buyers. A target in the region of $9.50 would seem feasible in coming sessions.




SHY  iShares Lehman 1-3 Year Treasury Bond  

SHY,an exchange traded fund which tracks US government securities of up to three year maturity, has a chart pattern which shows what appears to be a double top followed by a limited correction and with the recent move back towards the recent highs appearing to be fading. This interpretation is reinforced by yesterday's spinning top candlestick and volume patterns.
In addition the following news story from AP suggests that the appetite for short term US government securities from foreigners, specifically the Chinese, is diminising.


WASHINGTON (AP) -- A record drop in foreign holdings of U.S. Treasury bills in December sent a reminder that the government might have to pay higher interest rates on its debt to continue to attract investors.

China reduced its stake and lost the position it's held for more than a year as the largest foreign holder of Treasury debt. Japan retook the top spot as it boosted its Treasury holdings.

The Treasury Department said foreign holdings of U.S. Treasury bills fell by a record $53 billion in December. That topped the previous record drop of $44.5 billion in April 2009.





TUR  iShares MSCI Turkey Investable Market Index Fund  

TUR, a sector fund which tracks Turkish equities, has a remarkably well formed bear flag pattern, but as is always the case with this pattern, patience is a virtue and the desired directional breakdown may not be immediate.
If one is drawn to the short side in today's session a stop loss level of $54.80 would be advised.




FXY  Currency Shares Japanese Yen  

Switching from a well defined bear flag to an equally well defined bull flag, the exchange traded fund FXY tracks the movement of the Japanese yen against the US dollar.
Unlike the spot forex charts for USD/JPY which are featured in this column, this chart needs to be interpreted as one where strength in the yen will result in a move upwards in the fund. The doji star which is sitting on the 50 period EMA and the position within the Ichimoku cloud would suggest that this is another trade with clear upside potential, and, I suspect, limited loss potential if the stop is placed near the intraday low of the large green candlestick highlighted on the chart (the low on this candlestick from February 4th was actually 109.46).