Daily Form September 30, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY SEPTEMBER 30, 2010       10:42:00 GMT




Spot gold is trading at $1315 an ounce as this is being written and is on its way to a target which was mentioned in this column in October 2009 of around $1340. Meanwhile the US dollar index is at its lowest level in eight months.


I believe that the end of quarter window dressing to try and break above $1150 on the S&P 500 is causing some extremely over-stretched conditions in the FX market which is all part of the effort to provide the most supportive backdrop to further gains for equities.

Somewhat tongue in cheek I made the following comments earlier this morning from my twitter account:


My hunch is that $GBPUSD has a run at $1.60, $EURUSD at $1.38, $AUDUSD at 0.98 and then its wile coyote time-which would also not be good for $SPX.

FX market seems really stretched against the dollar and there could be a big snap back in coming days.

End of quarter window dressing is causing some real tensions in FX which seem ready to break apart -perhaps even later today



The achievement of the $1340 target on gold, which arose in connection with the inverted head and shoulders pattern which took a couple of years to develop, could mark an exhaustion point in the outright hatred of the US dollar at present. October could be interesting.


A potential double top lies in wait for $GBPUSD.



As discussed here on Tuesday and on CNBC that afternoon, $AUDUSD could be facing a key inflection point.



The S&P 500 futures are currently at 1140 and if the window dressing exercise can be sustained today it would be not be surprising to see a rally up to 1150.

Meanwhile I shall be paying close attention to any ambushes/traps that are being set in the forex arena as we exit a very profitable September and open the books for Q4.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 30, 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



Daily Form September 28, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY SEPTEMBER 28, 2010       09:12:00 GMT




I have been invited to present charts for analysis on CNBC’s European Closing Bell this afternoon (at 16:40 London time) and will be showing, time permitting, the following three charts below. This also explains why today’s commentary takes a big picture view on material which has been covered in finer granularity in recent commentaries.

The target which is now on the agenda for the S&P 500 cash index, and could even come this week, is the 1173 intraday high from May 12th in reaction to the May 6th mishap. As also discussed here the Nasdaq 100 has already achieved the equivalent target and seems destined to head towards the April high.

If forced to express an opinion about the direction of the S&P 500 over the next 30 days (as one tends to be on a TV slot) my suggestion is that the 1170 could well be touched but, given the risks attached to other strategic targets which are outlined below (including the NDX scenario), the potential benefit of maintaining a long position in the S&P 500 beyond this 1170 level- waiting for a re-visit to 1200/20 - would not fit my risk/reward trade-off criteria.




The long term weekly chart for AUD/USD reveals that the highest weekly close on this currency pair was observed for w/e July 20th 2008, which was a pretty good ringing of the bell marking the exhaustion top of the leveraged carry trade at that time and which preceded the financial meltdown of H2, 2008. As can be seen the value registered, in terms of closing values, was 0.9727 which is only about 100 pips from where this pair has been during the last few trading sessions.

My contention is that the risk/reward ratio for being long this pair is becoming unfavorable. This is not the same as suggesting that one should be instigating a short position - yet.

The way in which I reconcile these comments with the view expressed here yesterday regarding the target of 81.80 for AUD/JPY is as follows:

1. I would not be surprised to see another run up in AUD/USD towards the 9730 level in coming sessions
2. I would not be surprised to see a weakening of the yen against the dollar towards the 86 level

The net result would be that AUD/JPY will strive to hit the 62% retracement level discussed yesterday, but, given the other conditions around this, my sense is that the 81.80 level could well be an intermediate milestone, and certainly a place to exit any long positions in AUD/JPY.



USD/JPY is drifting back to the levels around 84 where the BOJ intervened on an industrial scale during Asian trading on September 15th.

As suggested here yesterday my intuition is that the BOJ is really struggling with the Chinese central bank over this rate and I suggest that the PBOC could be moving into more politically treacherous territory as its currency management operations are antagonizing many central bankers and politicians.

I have drawn a line at the 88.50 level which I believe is a level which has to be contemplated as a possible target for the yen against the dollar if only market forces (and not currency manipulation) are allowed to express themselves.


Daily Form September 27, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY SEPTEMBER 27, 2010       10:48:00 GMT




Friday’s strong rally in US equities took many by surprise and, judging by the volume characteristics which still are not registering what one would expect for a late Q3 session, the suspicion is that a lot of the upward price momentum was propelled by some end of quarter short covering by position traders.

Also significant as background music were the comments from David Tepper on CNBC which amounted to little more than the simple message "Don’t Fight the Fed". I have commented further on this at the following location .

The target which is now on the agenda for the S&P 500 cash index, and could come this week, is the 1173 intraday high from May 12th in reaction to the May 6th mishap.

The only comment that I would make, and this is not necessarily evidenced by any technical indicators, is that the turn of Q3 into Q4 later this week could create some short term choppiness. Also worth noting is that this Friday, despite being the first of the month, will not see the release of the NFP data, which will come on the following Friday.




The Nasdaq 100 is in the vanguard of the bullish move up in equities and is largely being energized by Apple which is now the second most highly capitalized company in the world and about to take on the $300 level.
Although iPad and iPhones are wonderful gadgets it still baffles me that this company should command such a valuation. Indeed it is tempting to conclude that this may be the most loved stock in recent market history.

Anyway I would now be looking for the NDX to test the April 26th high at 2059 in coming sessions.



The Russell 2000 is still within a five session "trading box" despite the strong showing on Friday. A close above 680 would be yet another positive for the bulls.



Applying the fibonacci grid to one of my favorite risk barometers, AUD/JPY, raises the distinct possibility of a target of 81.80 which would be the 62% retracement of the swing high/low visible on the chart

Also notice how the 50% retracement level exactly coincides with the extended cloud top in the middle of the chart, and that this would now act as a major support level.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 27, 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





AGG  iShares Lehman Aggregate Bond ETF  

There is evidence from the candlestick action as well as the MFI and RSI chart segment that prices on investment grade corporate bonds, as reflected in the exchange traded fund AGG, may be ready to enter a correction.




CYB  WisdomTree Dreyfus Chinese Yuan  

Hopefully readers have followed the suggestion first made here some time ago to participate in the gradual move up in the Chinese yuan, and with the political climate in the US now becoming more directly confrontational on this matter, further moves up seem likely.




IYR  iShares Dow Jones US Real Estate  

IYR looks attractive on the short side as it approaches the recent high.



Daily Form September 24, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY SEPTEMBER 24, 2010       11:08:00 GMT




The 240 minute chart for the S&P futures (December) indicates the potential for a test of the lower boundary of the cloud formation at approximately 1110. There has been a bearish Ichimoku crossover signal already registered, but I would prefer to wait for further validation that a tradable correction has begun before taking any position on this index.

A failure to regain a foothold above 1130 during today’s session would motivate me more towards stalking entry opportunities on the short side, if not later today then during Monday’s trading.

One of my preferred commentators, Ambrose Evans Pritchard, makes the interesting comment in a column today regarding the deteriorating position in Ireland, which may become a contributing factor to another relapse in the "animal spirits" as we move into October.

Spreads on Ireland’s 10-year bonds have risen to 405 basis points. Gavan Nolan from Markit said credit default swaps measuring bond risks on Irish banks are nearing the levels of Icelandic banks shortly before they defaulted two years ago, reaching 955 for Anglo Irish (senior debt), 615 for Allied Irish and 530 for Bank of Ireland.





While writing this during Friday morning trading in Europe spot gold is within a dollar of breaking through the $1300 barrier and perhaps not coincidentally the US dollar is in danger of dropping below the 0.98 level against the Swiss Franc. The euro seems headed towards $1.35 during today’s session and I have had a couple of quick long trades on EUR/GBP.

Further deterioration in the dollar and further strengthening of gold will certainly pose dilemmas for the reflation traders.



The hourly chart for USD/JPY reveals a dramatic reversal following what appears to have been a further round of BOJ intervention in Asian trading. The cynic might add that the PBOC (Chinese central bank) is the BOJ’s biggest customer and appears, from anecdotal evidence, to like the yen even more when the BOJ tries to cheapen it.

This represents a completely new dimension to FX trading than the relatively uncomplicated days of yesteryear when the "major" economies could reach accords on FX intervention. Rather the growing tensions between Japan and the US with respect to the strength (or lack of) of the yuan could escalate into yet another reason why global capital flows will become more capricious and risk off might seem more appealing again.



Earlier in the week I took note when the Russell 2000 put in a very good showing which suggested that the appetite for micro caps could help to see the broader market move decisively above 1130 and remain there.

However, as the chart reveals, it is becoming problematic that this index appears to be failing at marginally lower highs in its efforts to reach back to the critical 680 level.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 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





DIS  Walt Disney Company The  

Walt Disney (DIS) looks vulnerable to further weakness.




GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) is not behaving well although I hesitate to recommend a short position as this is one of the trickier stocks to trade in my experience.




IAI  iShares Dow Jones US Broker-Dealers  

An exchange traded fund which tracks the investment banks, IAI, has broken a key trend line and out of the cloud formation on heavy volume suggesting that we may be setting up for a triple bottom test in coming sessions.




EURJPY    

EUR/JPY is tempting based on the resilience in the euro and the fact that the BOJ just might have another shot later today in trying to weaken the yen and make it stick.

However as the daily chart indicates there is a lot of overhead resistance above 114 and apart from buying on sudden pullbacks with relatively quick exits I would not recommend "position trading" this pair until the efficacy of the BOJ's efforts becomes clearer.




EWC  iShares MSCI Canada Index  

Here again is a comment from the September 16th newsletter:


The daily chart for EWC, a sector fund for Canadian equities which tracks the MSCI Canada Index, caught my attention this morning as the candlestick pattern and yesterday's heavy volume could be the precursor to a corrective move.





YCS  UltraShort Yen ProShares  

If the BOJ can come up with a sustainable strategy for weakening their currency, the exchange traded YCS (a leveraged vehicle which rises on yen weakness) is the place to be.



Daily Form September 23, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY SEPTEMBER 23, 2010       11:24:00 GMT




Today’s commentary will be abbreviated and essentially a follow up to some recent charts shown here.

QQQQ met resistance at the $49 level and judging by the way that the S&P 500 futures are behaving during European trading - currently at 1121.75 - there would seem to be scope for more corrective action today.



GBP/USD appears to be registering lower highs as it attempts to break above the $1.57 level and I would be inclined, during today’s session, to look scalping opportunities to short waiting for a pullback towards the top of the cloud on the 240 minute chart around $1.56



As the pattern evolves in line with a comment made here recently, XME still could surprise with an upward breakout.



Yesterday I indicated that the financial services sector was not showing relative strength and XLF is not acting well from a technical perspective.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY SEPTEMBER 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





PMCS  PMC-Sierra Inc.  

Here again is my comment from Tuesday's commentary


PMCS, a semiconductor stock, has one of the least constructive charts amongst individual equities.





MES  Market Vectors Gulf States ETF  

MES,an ETF providing exposure to the Gulf States region, has begun to rollover.



Daily Form September 22, 2010


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY SEPTEMBER 22, 2010       10:31:00 GMT




From one perspective, the FOMC did not disappoint on signalling its preparedness for more asset purchases to be funded from the public balance sheet, but for those long the US dollar it has been a rough 24 hours and could get a lot rougher.

Just how much enthusiasm equity bulls can muster today when trading begins in North America remains to be seen but in Europe the market is seeing a case of having bought on the rumor throughout the earlier part of this month and selling on the news.

The FTSE 100 is again demonstrating difficulty in maintaining a foothold above the 5600 level and at the time of writing the Spanish IBEX 35 index is down about 2%. Also attention should be focused on Ireland where the news seems to get gloomier and where there are ongoing rumors of capital flight from that country’s private banking sector.



Here again are my comments from the September 13th commentary:

The stated objectives of the sector fund, CYB, are "to achieve total returns reflective of both money market rates in China available to foreign investors and changes in value of the Chinese Yuan relative to the U.S. dollar."

Recent stirrings in the Chinese currency, partly reflected in the chart below, suggest that this ETF is a vehicle to consider if there is follow through in daily range expansion.




EUR/GBP hit my target of 0.8530 in this morning’s trading and I exited my remaining long position established at 0.8380. With the euro steaming ahead for a possible test of the $1.35 level this pair still could has capacity for further gains on the long side but I would become more willing to re-enter after a pullback and consolidation of this morning’s gains.



The weekly chart for USD/CHF shows clearly the disdain from FX markets following the latest deliberations of the FOMC, and even though Chairman Bernanke may not disapprove of a weak dollar for US trade competitiveness, as custodian of the global reserve currency there would be some concern if there is no stabilization in the context of a potential triple bottom formation on this key cross rate.


Daily Form September 21, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY SEPTEMBER 21, 2010       11:04:00 GMT




The clear break above 1130 on the S&P 500 cash index yesterday puts upper targets now in play with 1170 and then 1200 as distinct possibilities in coming weeks. However on a cautionary note, one should not underestimate the capacity for disappointment if the FOMC do not articulate a clear signal that another round of QE is on their agenda.

QQQQ has reached up exactly to the $49 level which I discussed here last week and, as noted yesterday, the ascent pattern since the beginning of September suggests that a lot of favorable news has already been discounted by traders. Could a bout of selling on positive news be in store for those who have enjoyed a nice ride up so far this month?



My favorite chart for today is for the Mumbai exchange which managed to close just above 20,000 during trading in Asia on Tuesday.

The weekly chart shows just how much ground has been covered not only during the last month but also since the lows of late 2008/early 2009. I would suggest keeping an eye on this index in coming sessions for any evidence of a buying climax and exhaustion arising in the vicinity of the previous highs from early 2008.



My comments over the last couple of commentaries regarding EUR/GBP could have generated a nice return already from partially scaling out of a long position, and I would maintain the target around 0.8530 as still valid for the remaining portion of the position.



The 30 minute chart for USD/JPY is one of the most unusual looking sideways patterns that I can recall and shows that with the threat of BOJ intervention on the one hand and a reticence to sell the yen on the other this part of the FX market is virtually paralyzed.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY SEPTEMBER 21, 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





PMCS  PMC-Sierra Inc.  

PMCS, a semiconductor stock, has one of the least constructive charts amongst individual equities.




XLF  Financial Select Sector SPDR  

While risk on is in the ascendancy there is little temptation to short most market sectors. The volume pattern for XLF in recent sessions however suggests that there is not much enthusiasm behind the recent price gains.




PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, and which I have mentioned here recently, continues to display a negative tone where further price erosion seems likely.



Daily Form September 20, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY SEPTEMBER 20, 2010       11:08:00 GMT




Last week I suggested that QQQQ could struggle around the $49 level and the chart below for the Nasdaq 100 index which QQQQ, the exchange traded proxy, tracks also indicates that the 1980 level is an area, coinciding with the recovery bounce from the early May spike down.

The hanging man candlestick from Friday’s trading is commonly seen at inflection points and could be a precursor to a temporary pause in the almost uninterrupted ascent seen during September.



I have included a couple of indicators which I use for FX trading in conjunction with the 240 minute chart for AUD/JPY and the suggestion, still to be validated by price action later today, is that the Aussie dollar could be topping out against both the yen and the US dollar near to current levels.




Trading in Asia was relatively quiet on Monday with Japan closed for a public holiday and other markets performing rather unremarkably.

The main European markets are showing gains of about one percent at the time of writing but at present the FTSE is revealing an "inside" session with respect to Friday’s activity. A failure to close above 5600 in the next couple of sessions would suggest that the rejection encountered at Friday’s intraday high above this level could lead to some consolidation between 5400 and current levels.



On the 60 minute chart for EUR/USD there is evidence of a broken uptrend line and the bias I suspect is to the downside during today’s session.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY SEPTEMBER 20, 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





EURGBP    

Last Thursday I made the comment that "the daily chart for EUR/GBP is suggesting that an intermediate term target of 0.8530 is now feasible." During trading this morning in Europe the euro broke to a new recent high against sterling as shown on the daily chart below, and, although it encountered some substantial selling around the 0.84 level, the longer term outlook is still pointing to further gains for the euro against the British pound.




ILF  iShares S and P Latin America 40 Index  

ILF is displaying a sequential candlestick pattern which suggests that there is firm resistance at the levels seen in April.




MES  Market Vectors Gulf States ETF  

MES,an ETF providing exposure to the Gulf States region, has a similar appearance to that observed for ILF.



Daily Form September 17, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY SEPTEMBER 17, 2010       09:55:00 GMT




Trading in forex this week has the additional element of risk that central banks are now adopting a pro-active stance towards intervention. In yesterday’s trading the Swiss National Bank were clearly in evidence selling the Swiss franc and buying dollars and euros partly to offset the impact of the strengthening of the Swiss franc against the yen which resulted from the actions of the BOJ on Wednesday.

As readers will recall there is an unusually strong tracking relationship expressed by CHF/JPY and when the pair gets top heavy from the Swiss perspective corrective action is to be expected as was seen yesterday and should be expected again as the pair continue to re-align after interventions.

From my perspective I intend to be a little less active in FX trading until the extent of the intervention efforts becomes clearer.

Meanwhile risk is definitely on at present with the S&P futures now well established above 1130 and targeting 1140 in European trading on Friday.

QQQQ looks to be headed to the level indicated on the chart but the very strong ascent pattern suggests that there could be a consolidation at best at the $49 level with some quick corrective action a distinct possibility.



Recently I noted that spot gold needed to alleviate concerns that a double top pattern would have been formed if the metal could not break decisively above $1267.
As the chart indicates in trading Friday in Europe following convincing action in Asia earlier the metal is now above $1280 and trading with momentum that suggests that the $1300 level in now being targeted.



The weakest looking sector chart that I encountered in my daily scanning was for the Housing Index (HGX) where the rejection at the top of the cloud demonstrates the usefulness of the Ichimoku formations in determining levels of potential resistance. Also evident on the chart is the potential for a violation of the short term uptrend line which, if confirmed in the near term, would make the homebuilding stocks vulnerable to further weakness.



As noted in Monday’s column the exchange traded fund CYB which enables one to benefit from changes in the closely managed relationship between the Chinese currency and the US dollar is well worth monitoring in coming sessions.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY SEPTEMBER 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





XME  SPDR Metals and Mining ETF  

On the long side, XME has a supportive chart pattern which has several of the characteristics of a cup and handle formation, and which could be ready for a break away to the upside.




PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY is an exchange traded fund which tracks the sovereign debt from emerging markets and the recent price and volume action are indicative of what might transform into a downward staircase pattern.