Daily Form June 3, 2010

Inter-market Technical Analysis using algorithmic pattern detection

THURSDAY JUNE 3, 2010       06:49 ET

Yesterday’s trading when the US markets opened became a classic example of the bi-polar switch to risk ON as equities surged, the Australian dollar lifted off spectacularly like a NASA launch and AUD/JPY rewarded handsomely on the long side.
The annotations provided on the chart for the S&P 500 below show that the large candlesticks seen in recent sessions have characteristics of an inside pattern in relation to the bigger picture.
The rising lows are certainly a positive sign, suggesting that the right shoulder pattern to which I alluded in Tuesday’s commentary may be under way, and we shall see whether today the small descending trend-line through recent highs can be violated. Once again the FX background looks reasonably supportive that the 1100 barrier can be mounted - but it could be a day of whipsaw behavior and as always I shall take my cues from action in the yen and the euro.

While writing this I have been working a short $EURUSD position based on the 15 minute chart segment shown below. The break of the trendline indicated provided the signal but the bottom of the cloud which has now been touched also provided the exit point for a gain of 45 pips in about one hour.

The Japanese market celebrated the big gains in US equities yesterday with a 3.2% trend day.
The gap indicated has almost been filled and, as long as a weakening yen cooperates, the gains should continue with an initial target of 10,250.

In yesterday’s commentary I showed the daily chart for USD/JPY and suggested that the top of the cloud would be a good place to exit long positions. As of the time of writing this the level of 92.70 is almost exactly where the cross rate is placed and I am now out of the trade as the risk/reward ratio on the long side is less favorable.
Also, as suggested above, this chart will be one of the most active on my screen today for clues as to the likely direction of risk assets. Simple rule of thumb is that stronger yen = less appetite for risk and vice versa.


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