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.".


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


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 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.