Daily Form April 7, 2010

Inter-market Technical Analysis using algorithmic pattern detection

WEDNESDAY APRIL 7, 2010       07:15 ET

The ascent of the Russell 2000 since early February is quite extraordinary and has more or less shrugged off any corrective activity at all. Just how much longer equities can continue to melt up in this manner on modest volume and with a preponderance of trading being performed by software driven programs is becoming a matter that I am hesitant to make any comment on.
Suffice it to say that there is a clearly defined pattern delineated on the chart which shows that a break below the steeply rising trendline through the lows would be considered by some technical analysts to be a significant violation. It remains to be seen whether under the new "normal" this amounts, in the inimitable expression from the movie classic Casablanca, to a hill of beans.
Even though I mentioned 1280 as a probable upside target in my forecast for 2010 I did expect there to be some bumps along the way, but maybe the financial engineers have been able to eradicate those pesky corrections that used to be part of a normal functioning market. We shall see.

The yield on the 30 year US Treasury bond has clearly broken out of a formation which has some resemblance to a cup with handle (even though the handle is tiny). Five percent coupons look like becoming the new baseline for the longest term Treasury issue and if auctions continue to be poorly received the 10 year looks likely to have a four percent coupon as the baseline sooner rather than later.

Although there are some occasions when one feels less confident than others - and with respect to equities I have to confess that I do not feel very comfortable about participating too keenly in that arena at present - I remain far more sure-footed that in the case of the much larger FX markets - that unsettling remark that is starting to appear again from some equity market pundits - this time things are different - does not apply to foreign exchange. The FX market is just too diversified and too liquid to be "managed".
By way of personal reassurance these were my comments last week on the dollar/yen rate

USD/JPY has moved up almost exactly to the base of the cloud formation and it would not be surprising to see consolidation near to current levels before the next decisive move aimed at piercing through the top of the cloud formation.
As discussed yesterday the odds are now favoring a considerably weaker yen in the longer term.

I will be looking at re-building long positions on USDJPY and believe that once the cloud is penetrated targets of 97 and 100 could be attainable during this summer.

The Australian central bank has once again added 25 basis points to its repo rate with talk that further hikes are to come. As the chart reveals AUD/USD is now almost back to levels seen two years ago.
One thing to keep an eye on however on the weekly chart is the subsidence of the RSI values seen on the bottom segment of the chart. For short term traders the long side with the Aussie dollar is definitely the place to be, and AUDJPY is worthy of attention.


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

SHY  iShares Lehman 1-3 Year Treasury Bond  

SHY reveals a weak technical outlook.

AA  Alcoa Inc.  

Alcoa (AA) looks to be headed to $16 at least.

RMBS  Rambus Inc.  

Rambus (RMBS) would be worthy of consideration on the short side, especially if it tags the bottom of the cloud pattern

LQD  iShares iBoxx Invest Grade Corp Bond  

The chart for LQD reveals a bearish Ichimoku crossover which often acts as a precursor to future weakness, but the pattern can take a few days to evolve. Readers are advised that TradeWithForm is now offering a premium subscription service which will provide daily alerts to a variety of technical patterns including many based on Ichimoku analysis. You can find out more about the TWF algorithmic pattern analysis by visiting the following link .

MBT  Mobile TeleSystems OJSC (ADR)  

From reviewing the MACD chart segment it would be worth monitoring MBT for further evidence of a possible failed double top pattern.