Daily Form March 18, 2010

Inter-market Technical Analysis using algorithmic pattern detection

THURSDAY MARCH 18, 2010       06:21 ET

The KBW Banking Index (BKX) has decisively broken away from the cloud formation on the weekly chart and targets near to the 60 level are now in play. Traders can get exposure to this index via the exchange traded fund KBE.

Keeping track of the latest twists and turns in the Greece rescue plans is not for the faint hearted but meanwhile it presents opportunities for FX traders who are not only having fun with the EUR/USD rate, but also in the wake of some surprisingly good news for the UK economy (or at least the markets are perceiving it as good news and a chance to squeeze the abundant sterling bears), the EUR/GBP rate is being heavily traded at present.
Just to summarize EUR/USD first the $1.38 level has proven to be a very tough barrier to cross and the euro is in retreat again in European trading. For the time being, seeing the opportunities as lying within the range of $1.3450 to $1.3750 seems to be the best way to trade this from an intraday perspective.
Looking at the daily Ichimoku charts it can be seen that the 50 day EMA (the redline on the chart) is about to collide with the declining cloud formation at the 1.38 level and I would suggest that it will be technically difficult for the euro to break through this level - even if the markets breathe another sigh of relief on the announcement of yet another definitive rescue plan for Greece!
I admit to having been prematurely too bearish on sterling against the euro and we are now back below the 90 level on this cross rate - but longer term I still believe that not only do the technicals point to renewed pressure on sterling but also the economic fundamentals are being propped up by a government which is reluctant to take the required austerity measures for fiscal sanity ahead of the UK election.

The US dollar found support against the Swiss Franc at the top of the daily cloud formation and underlines my comments from last week that the 1.0540 level was a significant level for this pair. However as also discussed the Swiss currency is highly correlated to the euro and this is probably not the right time to be pushing the long side on USD/CHF for short term traders, although I plan to start building a long position on USD/CHF when there are dips back to the 1.0550 area on the belief that the US dollar rally against the Swiss currency is not over.

I shall repeat my comments from Tuesday’s column regarding AUD/USD

The Reserve Bank of Australia is indicating that the future course of interest rates remains upwards and this is helping the AUD/USD in early European trading. A break above the cloud formation and the descending trendline .... which I suspect is imminent, would put targets around 9190, and perhaps beyond, in play.

The additional comments I would make regarding the daily chart above is that a broadening pattern - sometimes referred to as a megaphone formation - is making itself more evident on the chart, and there is a downward tilt to this. It would seem from the pattern that the Aussie dollar is at a fairly critical level at present, and if it cannot penetrate the upper descending line, then a topping formation could be under way and raises questions about the intermediate term prospects for those heavily exposed to FX carry trades.


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

ULBI  Ultralife Batteries Inc.  

UltraLife Batteries (ULBI) is quite intriguingly poised within a constricted range (i.e. the Bollinger bands are relatively close together) and the pattern resembles a rather shallow cup and handle formation. My intuition is that, if the stock can close above the $4.50 level, it could move quickly back towards the $5 level, and, as a further suggestion, I would keep 50% in the trade on the chance that the $5.50 level may be tested.

ERES  eResearch Technology Inc  

I shall also be monitoring eResearch Tech (ERES) today to see whether the upward trendline is broken, which would suggest a break down to $6.00. However a close today above $6.85 would be a validation of the more typical consequence of this upward wedge pattern which would be a breakout to higher levels with a near term target of $7.20 - a level which was last seen in December 09.