Daily Form January 11, 2010

Inter-market Technical Analysis using algorithmic pattern detection

MONDAY JANUARY 11, 2010       07:04 ET

The KBW Banking Index (BKX) has been one of the outstanding performers since the turn of the year. Several charts for the major banks were revealing descending wedge patterns in late 2009 - including JPM, GS, and BAC Part of the thinking behind my recommendation regarding a long position in JPM made in late 2009 was that there were too many large funds short the sector, expecting the January employment report to be strong enough to bring on the Fed exit strategy sooner rather than later.
The US economy remains anemic and this is good news for the banks ability to play the yield curve and engage in other kinds of financial engineering, knowing that the Fed is still in super easy money mode. The clear break above the Ichimoku cloud formation suggests that the way is clear for a challenge of the October high around 49 and an intermediate term target of 60 on this index.

Sterling is surprising on the upside against the dollar and once again I would attribute this to a lot of short covering based upon the mis-apprehension about the strength of the US economy based on the NFP data that was released in December and now overshadowed by the more recent data.
A good target for the top of the short covering rally for GBP/USD would be the area indicated on the chart in the vicinity of $1.63.

As anticipated here last week spot gold has broken above the Kijun Sen level on the daily chart at approximately $1150 and, in my opinion, the way is now clear for a move back to the recent highs and beyond.