Daily Form January 22, 2010

Inter-market Technical Analysis using algorithmic pattern detection

FRIDAY JANUARY 22, 2010       03:20 ET

At approximately 11.40 Washington time the President of the United States, standing tall with the eminence grise and ex Fed Chairman, Paul Volcker, standing beside him and looking even taller, declared an end to the cosy relationship between the US government and Goldman Sachs. Or did he?

On the one hand the trauma of losing the senate seat in Massachusetts may well have helped to focus his mind on the need to finally appear to the American public that they had not voted for a complete business as usual opportunist in November 2008, on the other does he really relish a fight with those on Wall Street who could be extremely nasty and devious adversaries.

There is some wiggle room in the wording of the statement regarding the restrictions on being able to benefit from the FDIC security blanket and at the same time engage in casino capitalism, but the President sounded as though he was spoiling for a fight and appearances and symbolism at the US presidential level are everything.

If Mr Obama has to kiss and make up too soon with the former investment banks it will become more and more obvious to the global financial community that the head of the world’s largest debtor nation but still the axis of the financial system is, to use a quaint American expression, all hat and no cattle. If on the other hand, the confrontational dynamics take on a momentum of their own, the dislocations and repercussions to the way that global finance is conducted could turn very ugly.

One by-product, which a cynic could even suggest was not entirely unintended, is that there could be more investors who find the safety of US Treasury bonds more appealing than the risk assets which have been propped up since March 2009 by the liquidity provisioning of the likes of Goldman Sachs.

While reflecting on the rather momentous announcement just over an hour ago there is a tendency to question - did I really hear that right?

Let’s see whether Wall Street (using that term as loosely as one uses Hollywood to describe the entertainment world) will be able to sneak into the inner sanctum of the Obama White House again through the back door, or perhaps I really did mis-perceive the significance of the event, and that nothing of any great consequence really was announced.

Asian and European markets were also hit by the surprising defiance of the Obama/Volcker initiative. In Asia the Nikkei dropped about 2.5% but the Hang Seng managed to regain some strength in late trading.
The S&P 500 dropped back almost 2% and came to rest more or less at the 50 day EMA.
The chart configuration suggests that a follow through to yesterday’s weakness should eventually lead to a re-test of the 1085 level.

During the early part of North American trading the Australian dollar appeared to be in free fall against the US dollar. The recovery indicated on the 240 minute chart captured as this is being written may well have run its course.

After increasing signs of investor complacency the VIX shot up by almost 20% in yesterday’s session.


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

IYM  iShares Dow Jones US Basic Materials  

IYM, the basic resources sector fund was one of the larger non-financial victims yesterday as discussed earlier this week.

EWZ  iShares MSCI Brazil Index  

EWZ, the sector fund which tracks the MSCI Brazil Index, also discussed in Monday's commentary has dropped more than six percent this week.