Daily Form November 30, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY NOVEMBER 30, 2010       11:01:00 GMT




My target of $1.3080 provided a staging point for a short term rally in EUR/USD in yesterday’s session but the selling resumed in Asian trading and in the European session we have broken below $1.30, although at the time of writing we are still hovering in that vicinity.

The Eurozone mess just gets messier on a daily basis and the tectonic plates of systemic risks are grinding a little more than would make me comfortable if I had a lot of long exposure to risk assets. But POMO operations are a wonder to behold and Dr Bernanke’s goal of "supporting" US equities suggests that it is better not to fight the Fed - at least by being short US equity index futures. POMO should keep a bid under the S&P 500, and as indicated here yesterday - the Russell 2000 remains near to the key 740 level - so for the time being fund managers can keep hoping that the combination of the Fed’s generosity and the ECB’s outright fear of financial panic in the EZ will allow us to muddle through as we often do.

In the meantime a careful monitoring of the sovereign CDS marketplace will provide a decent metric for measuring the likelihood of a major seismic event.



Spot gold has broken above the top of the Ichimoku cloud on the 240 minute chart and seems set to challenge $1383 - and this is despite a strengthening in the US dollar. Clearly the risk off mindset - some trading desks specializing in European bonds would call it slow motion panic - is encouraging asset allocators to increase their exposure to precious metals in case the unthinkable becomes the reasonably possible.



There are several ETF’s which allow for exposure to the peripheral Eurozone states such as EWP which is a tracker for Spanish equities and EWI which tracks the MSCI Italy Index (see below for the equivalent for France).
Reviewing the chart below the series of gap down moves seems to have encouraged some buying interest but the arrow on the chart indicating a critical Ichimoku crossover on heavy volume provided a precursor to the glaring break of the trendline which occurred early in November.
The preferred stance toward this sector would not be to chase this down but to wait for a decent pullback and then take a short position with greater conviction as Spain’s real estate problems will be a feature of the rolling EZ crisis in the months to come.



AUD/JPY is hanging on by its fingertips to the support level indicated on the 240 minute chart below.
As the larger frame technical picture suggests the clear violation of the uptrend shows that further correction towards the 78 level is likely and the trading stance should be one of selling any rallies.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 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





EWQ  iShares MSCI France Index  

EWQ is an exchange traded fund which tracks the MSCI France index and seems to be headed eventually toward a test of the $22 level.

There are rumors in European trading on Tuesday morning that ratings agencies - perhaps S&P - are looking at issuing a negative outlook for the world's fifth largest economy. This would put the French AAA rating at risk and further undermine the credibility of the AAA rating which the ineffable CRA's gave to the European Financial Stability Facility (EFSF) back in the summer. Once again relying on the ratings from these agencies is proving to be hazardous to one's wealth.

Just one further item which caught my attention this morning from a column by Ambrose Evans Pritchard was the following - "French lenders have $476bn of exposure to Italian debt, according to the Bank for International Settlements". At the time of writing the CDS rates for Italy were moving rather quickly in a direction which suggests that after Portugal and Spain it could be Italy's turn to face the music.

Just to finish on this gloomy assessment for the EZ the following note from Nomura has been reported today and echoes the concern expressed here yesterday about German bunds



Initially the rise in Bund yields could have been explained by the coincident rise in Treasury yields post the QE announcement from the Fed. However, even this move, which is incorporated into the simple two-factor OLS model in Figure 1, is not enough to account for the rise in Bund yields. It now appears increasingly likely that the Bund has shifted correlation with the periphery and is now underperforming in unison with the periphery; the euro area debt markets are increasingly trading as one.

The negative tone with which the latest EU support package has been received by markets makes it increasingly clear that there is little the EU policymakers can do to calm markets in the short-term. So much confidence has been lost that it will take time to rebuild and the solution will likely involve further fiscal support from Germany.





CMF  iShares S and P California Municipal Bond  

CMF, the exchange traded fund which tracks California's municipal debt, may have pulled back enough for another attack of vertigo to unfold.




FNF  Fidelity National Financial  

The chart for Fidelity National Financial (FNF) shows a tiny hanging man yesterday which could be the culmination of the pullback effort following the big sell-off in mid October.




FSLR  First Solar Inc.  

Another candidate for the short side amongst individual equities is First Solar (FSLR)




PCY  PowerShares Emerging Mkts Sovereign Debt  

Not that I recommend this strategy carte blanche but regular readers will recall that I was early on my negative calls for PCY, the exchange traded fund which tracks the sovereign debt from emerging markets. In fact I lost a couple of times on premature short trades, but persistence has certainly paid off during November and the heavy volume yesterday which has brought the fund to a key level provided an excuse to cover half of the position but still with an anticipation of further gains in the intermediate term.



Daily Form November 29, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY NOVEMBER 29, 2010       12:19:00 GMT




On the weekly chart for EUR/USD there is a case to be made that we should expect support around $1.3080 in the near term but the big technical picture looks very weak.

I watched an interview last week in which Jim O’Neill from Goldman Sachs, who is clearly an astute observer of the markets but also renowned for his very upbeat views in general, made the case that the fundamental value for the euro is about $1.20. From a technical perspective it seems more probable that the $1.18 level - seen during the earlier euro crisis this year - will need to be re-tested.

For my own views on the future of the euro currency - in essence I don’t think it has a future in the longer term - readers may wish to read the following piece.



The yield on the five year Treasury note may see a retreat in the near term based on safe haven buying amidst the woes of the Eurozone and sovereign debts of Club Med, but the technical formation is beginning to resemble a pattern which can often precede upward breakouts.

While on the topic of key interest rates, Bund futures are pointing to a lessening appetite for German government bonds and one spread worth monitoring closely is the differential between the 10 yr bund and the 10 year UST.
Given the troubled outlook for the EZ one would expect German bond yields to continue moving higher relative to their US counterparts.



The resilience of US equities in spite of all of the headwinds within the global financial system and enhanced geo-political risk is quite revealing.

If the Russell 2000 can hold up and break above the 740 level this would suggest that the April levels on the S&P 500 should be challenged again, perhaps before the end of 2010.



Indian equities, as expressed by the Mumbai Exchange have seen a rather abrupt retreat and despite today’s rally - which failed to take out Friday’s high - I would suggest that a visit to the 200 day EMA is likely in coming sessions.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY NOVEMBER 29, 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





YCS  UltraShort Yen ProShares  

Here again are comments from the last time I discussed the exchange traded fund YCS


The exchange traded fund, YCS represents a leveraged vehicle which rises on yen weakness. I am not trying to call a bottom in the dollar/yen rate but I would say that for those with a longer term horizon there are some technical suggestions that the US currency looks "sold out" against several currencies, and in particular the yen.

Sometimes with positional plays the risk/reward calculus favors being early rather than late as the downside on entry in this fund even three weeks ago was relatively limited and there is still plenty of scope for further advance by the US currency.






PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, has continued its decline as anticipated.



Daily Form November 17, 2010


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY NOVEMBER 17, 2010       11:48:00 GMT




Yesterday was a tumultuous day for capital markets and much of the focus was on the deterioration in the standing of the Eurozone finance ministers as credible custodians of the single currency.

We were all reminded that the Eurozone is really nothing more than a "currency club" in which the member states have to agree unanimously on most major issues.

Yesterday saw the Finnish government pushing back on a package for Ireland and, it has now been confirmed this morning, the Austrian government has withdrawn support for further bailout monies for Greece because of their serial mis-statements (to put it politely) of the extent of their budget deficit.

Meanwhile global equities are taking it on the chin as asset allocators are reining back on their previous appetite for risk assets with emerging market equities and debts suddenly looking a lot less attractive than they did just two weeks ago.

The Nasdaq 100 index seems likely to find support at the 2060 level as illustrated on the daily chart below.



EUR/USD has seen some short covering during European trading on Wednesday morning but the $1.3350 level indicated on the daily chart looks to be a likely target for testing in coming sessions.



CMF, the exchange traded fund which tracks California’s municipal debt, and which was discussed in Monday’s column shows that, while the headlines may be more about the woes within the EZ, there are serious issues for credit markets with US municipal debt as well.



Having been early (see here) on my short recommendation for PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, the prognosis for a meaningful correction has now been validated.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY NOVEMBER 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





YCS  UltraShort Yen ProShares  

I alluded to being early on PCY and the same could be said of the observation made here in late October regarding the likelihood of a correction in the Japanese yen.


The exchange traded fund, YCS represents a leveraged vehicle which rises on yen weakness. I am not trying to call a bottom in the dollar/yen rate but I would say that for those with a longer term horizon there are some technical suggestions that the US currency looks "sold out" against several currencies, and in particular the yen.


Sometimes with positional plays the risk/reward calculus favors being early rather than late as the downside on entry in this fund even three weeks ago was relatively limited and there is still plenty of scope for further advance by the US currency.

I made the following observation yesterday on Twitter when the euro was getting roughed up:

Traders are coming to their periodic realization that, in times of stress, the US dollar is the world's worst currency, apart from all the rest




INP  iPath MSCI India Index  

INP which tracks the MSCI India index is one of several ETF's that are available and attractive for strategic shorting when the risk on mania gets ahead of itself. The Mumbai Sensex dropped back by more than 2% in Asian trading today and the chart suggests that the bottom of the cloud formation is a target level where short covering would be appropriate.



Daily Form November 16, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY NOVEMBER 16, 2010       10:56:00 GMT




There will not be too much commentary today as the charts are displaying themes which have been covered here at some length in recent weeks.

Just a general observation, statistics are revealing that there are not only signs of life in key economic data, but the release of inflation data in China, India, even the EU and UK on Tuesday morning are getting a little too hot for comfort. And this is happening just when almost everybody assumed that buying fixed income instruments was a one way bet.

Whatever happened to the not too hot/not too cold characteristics of a tepid recovery that made bad news good news for markets?

The Shanghai exchange took another 4% nosedive in Asian trading but now has reached a potential chart support level which also coincides with the 50 day EMA.



The 62% retracement level on the S&P 500 cash index at 1228 has revealed itself to have been a key resistance barrier and at present the balance of probabilities suggests that further downside testing is now likely.

We shall soon discover whether the mantra "don’t fight the Fed" -- which clearly wants higher stock prices to make us all feel wealthier -- is starting to lose traction. As previously suggested if forced in to a position on this I would still err on the side of favoring higher asset prices as Mr Bernanke will prioritize that objective over any concerns about inflationary forces becoming more of a concern down the road.



Yesterday I expressed some shock that the yield on the 5 yr UST had have moved up 30 basis points since November 4th, well we can now add even more surprise to the fact that after yesterday’s session it has now moved up 50 bps from the intraday high to the low on November 4th.



The Hang Seng Index has fallen back below the 62% retracement level.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 16, 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





LQD  iShares iBoxx Invest Grade Corp Bond  

LQD, a fund for investment grade corporates, is also correcting at a slightly alarming rate with a large gap down yesterday following a drop below the cloud formation.




PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, is now falling on substantial volume as anticipated here in previous discussions.




CADJPY    

The formation on the daily chart for CAD/JPY suggests that a significant base is in place, and with further progress through broken trendlines which tracked the descent of the Canadian dollar while the yen was in its super strengthening phase, this pair has plenty of scope for long term appreciation, with an intermediate term target indicated by the dotted line on the chart.




EURUSD    

EUR/USD has taken out several layers of chart support and the prevailing posture should be one of selling any abrupt rallies based on good news about EU growth (it's only happening in Germany) or on talk about "solutions" to the sovereign debt crisis (that story has a very long tail).



Daily Form November 15, 2010


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY NOVEMBER 15, 2010       11:33:00 GMT




The problems besetting Ireland, Portugal and Greece pose a threat to the EFSF or European Financial Stability Facility, which I plan to discuss later this week in this commentary and also on a TV slot.

However, just as daunting are the "challenges" now facing many US states and municipalities. California is one of the worst affected and recent negative revisions to the dire condition of the state’s public finances has taken its toll on the exchange traded fund CMF which is a vehicle that can act as a proxy for its municipal bonds.

The plunge below the cloud formation and on Friday below the 200 day EMA, accompanied by heavy volume suggests that while many traders are focused on the EZ peripheral states they would be well advised to keep an eye on the deterioration of states which can hardly be said to be on the periphery of the federation that is the United States.



EUR/GBP has made steady downward progress and now faces a critical test at the point where the dotted trendline has met the base of the cloud formation on the daily chart.

The woes in the EZ are not likely to be cured for a long period and the UK has the benefit of being able not only to print a lot more sterling but manage its own monetary policy so that it can keep up in the currency war. The Irish government must have mixed feelings about their decision to join the EZ and several analysts are now suggesting that a return to the Irish punt may not be such an unrealistic scenario.



Since QE2 was officially ratified there has been a noticeable ratcheting up of yields not only amongst US Treasuries (even the five year UST is now at 1.35% or more than30 bps above where it was on November 4th - which is a sizable move in a very short period) but also amongst investment grade, junk bond debt and even the more speculative variety of emerging market sovereign debt. The PCY fund, which I have mentioned several times, is now losing ground as expected.

LQD is a fund which can provide a proxy for investment grade debt and as can be seen by the highlights on the chart it has twice suffered from bouts of illiquidity in early May and on October 1st. The recent selling of this fund, which has produced a drop below the daily cloud formation, should provide yet further evidence that credit market woes are not confined to the Eurozone.



AUD/JPY was featured here last Friday and the comment made - i.e. "Now 81.80 looks like it could provide overhead resistance on the sharp reversal" has prevailed into this morning’s trading in Europe.

However the recent corrective performance of the Japanese yen is now suggesting that a re-test of the 82.50 would be a target during today’s trading. But as with many such FX trades this would be a near term opportunity and the appropriate risk/reward calculations would suggest that a fairly tight stop loss should be adopted.


Daily Form November 20, 2010


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY NOVEMBER 12, 2010       11:23:00 GMT




There have been many market moving developments during Asian and European trading, the two most noteworthy being the following:

1. Anxiety about stamp duty tax caused a late plunge in China with the Shanghai exchange closing down more than 5% and the Hang Seng giving back 2%
2. The EU "clarified" remarks by the German chancellor - showing that she is all bark and no bite - which has caused a panic of short covering in all of the euro cross rates and motivated the prop trading desks to buy oversold Irish and Portuguese bonds at bargain basement prices.

The combined effect on the S&P 500 futures has been to break below the channel discussed here yesterday and then rally back above 1200 with a possibility that we can make further progress to the top of the channel today. However the level indicated by the arrow will be a significant resistance level.



There is a veritable panic of short covering in EUR/USD this morning and it is causing a rapid rise in all euro cross rates.
Selling EUR/GBP will become more appealing as the EZ currency continues its climb.



Here again is a comment from late October which is now reinforced by the highlighted gravestone doji candlestick

CEW, which is an ETF marketed under the moniker Wisdom Tree Dreyfus Emerging Currency, seeks to achieve total returns reflective of both money market rated in selected emerging market countries available to foreign investors and changes to the value of these currencies relative to the U.S. dollar.

A short position would be a recommendation for those with a longer term holding period perspective.




Yesterday I suggested that AUD/JPY would head back to 81.80, but as the chart shows one should never underestimate the degree of damage that can be done to this cross rate when there is any negative news involving the Chinese market.

Now 81.80 looks like it could provide overhead resistance on the sharp reversal.


Daily Form November 11, 2010


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY NOVEMBER 11, 2010       11:51:00 GMT




The Treasury struggled yesterday with its auction of 30 year bonds as yield curve players know that this is the part of the maturity spectrum where the Fed is least likely to provide a safety cushion.

The yield closed at 4.24% (as anticipated here last week), but the long upper shadow to the candlestick suggests that some short covering of futures positions was being implemented by prop trading desks in anticipation of a negative auction result.

The recommendation is to continue shorting the long end of the UST spectrum, adding to short positions in either futures or ETF’s such as EDV (see below) on any counter-trend rallies.



In European trading on Thursday morning the market is yet again showing a remarkable degree of complacency regarding the public debt crisis in the EZ periphery.
Here are a couple of rather striking observations from a Bloomberg report on the Irish "problem", and there are similar issues brewing from Greece, Portugal and to some extent Spain as well.

The cost of insuring the bonds of Irish banks soared to distressed levels amid concern that the government won’t be able to afford the cost of bailing out the nation’s banks.

Irish and international banks’ loan losses in the country may total least 85 billion euros ($117 billion), central bank Governor Patrick Honohan said in Dublin yesterday, Morgan Kelly, an economics professor dubbed “Doctor Doom,” said on Nov. 8 that mortgage defaults may push the cost of Ireland’s bank bailout to 70 billion euros, more than the government’s estimate of 50 billion euros.

Credit-default swaps on subordinated debt of Allied Irish Banks Plc, the nation’s second-largest lender, are 57 percent upfront and 5 percent a year, meaning it costs 5.70 million euros in advance and 500,000 euros annually to insure 10 million euros of the bank’s debt for five years. Swaps tied to the subordinated debt of Bank of Ireland, the country’s biggest bank, cost 31.5 percent upfront and 5 percent a year.

“Concern seems to be mainly targeted at Ireland and its banks and everything looks like it’s going against them at the moment,” said Simon Adamson, a bank credit analyst at CreditSights Inc. in London. “Whatever they say to reassure people, it doesn’t seem to be having any effect.”


The S&P 500 futures are sitting roughly at the mid point of the triangular channel that "fits" trading in the 60 minute framework and a test of the 1200 level might be required before further progress back to the top of the channel is feasible.



The long IEF/short EDV trade continues to generate attractive returns but taking some profit from the position and adding to the short EDV side on any rallies would be the recommended approach.



On the 60 minute chart AUD/JPY is showing price rejection around the 82.80 level and a succession of marginally lower highs. A retreat to 81.80 is feasible in the next few hours.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY NOVEMBER 11, 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





EURCHF    

EUR/CHF delivered on the target just below 1.33 and still looks attractive on the short side on rallies back towards 1.3365.




EURGBP    

EUR/GBP has been a profitable trade so far this week and despite scaling out of much of the position I have left some on the short side towards the lower horizontal dotted line on the 240 minute chart below.




GBPCAD    

Re-entry points on the short side for GBP/CAD around the arrow on the 240 minute will be on my watch list for today's session.




OMX  OfficeMax Incorporated  

OMX is a long recommendation based on positive dissonance characteristics which have been flagged in the premium chart analysis section of the Tradewithform. com website. The recent high level indicated by the arrow becomes a feasible target with setting a suitable stop loss level (from the entry point) reflecting at a minimum a 2:1 reward/risk ratio.




PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, has been indicating negative divergences for some time and I have lost money on the short side but I still expect this ETF to eventually succumb to a substantial correction.




FLEX  Flextronics International Ltd. (ADR)  

One other chart which instantiates the same pattern template as that for OMX is for Flextronics and a re-visit to the April high is also a feasible target.



Daily Form November 9, 2010


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY NOVEMBER 9, 2010       11:09:00 GMT




While writing this commentary on Tuesday morning (GMT) spot gold has surged above $1420 and silver is approaching the $28.50 level. Coincidentally there is a coordinated movement in FX trading with USD/JPY weakening along with USD/CHF.

The 240 minute chart for the US dollar against the Swiss Franc shows a violation of trend line and a break down from a bear flag formation which points towards a re-test of the low from October 14th below 0.95.



Here again is the comment from yesterday’s column on EUR/CHF.

EUR/CHF is showing more signs of weakness and a potential break down, as anticipated in Friday’s commentary, and I would be looking for further declines over the next few sessions.


The target, below 1.33 is indicated on the 240 minute chart below.



Last week I suggested a long position in 7 year US Treasuries, available via the exchange traded fund IEF, and a matching short trade in EDV, which represents longer duration UST’s.
The spread trade has continued to produce positive returns and the EDV chart shows considerable scope for further decline in the longer term.



On the 240 minute chart, GBP/CAD shows that the violation of the trend line and cloud formation discussed here yesterday is looking more probable.
The lower low registered during the last 24 hours is highlighted in yellow.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY NOVEMBER 9, 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





ERES  eResearch Technology Inc  

Yesterday's comment on ERES could have produced a 5% return from selling the stock on the open and covering on the close


There are not many individual equities that I would be considering on the short side, but the chart for ERES looks vulnerable to further selling.


Revealing my occasional tendency toward blatant and shameless self promotion if, as a reader, you have found such recommendations as ERES, EURCHF and others, profitable there is always a way of expressing appreciation via Twitter and a reference to the Daily Form commentary.