Daily Form July 15, 2010

Inter-market Technical Analysis using algorithmic pattern detection

THURSDAY JULY 15, 2010       07:21 ET

Last week I targeted 1095 on the S&P 500 as part of the risk on regime which was ushered in by supportive dynamics from the FX carry trade and, in particular, cooperation from USD/JPY which made a key double bottom.

Reviewing the charts this morning I have decided to exit all of my net long exposure to equities and also to exit the FX carry trade i.e. AUDJPY and AUDUSD. The risk/reward ratio for US equities has now tipped from being favorable to being more risky, and I would prefer to monitor events from the sidelines. I am not short any index futures at present but if failure patterns emerge at the current critical level the temptation would be to return to the short side. For now I remain neutral and will focus on short term trading opportunities in FX.

The trade on AUD/USD which I outlined on Tuesday got stopped out (just!) after the release of the Intel earnings. I should have taken into account the blindingly obvious possibility that, in today’s Alice through the looking glass markets, an upbeat earnings statement from the world’s largest semiconductor maker had to be very positive for the Australian currency!
Having been taken out from the trade by a move above 8860 by the highlighted candlestick I am still stalking the short side but on a much shorter time frame as the chart below suggests to my eyes at least that a sell channel is evolving. But I have learned not to bet the ranch on such intuitions especially given the unusually powerful and enigmatic dynamic of correlation trading that underlies so much of the movements in markets currently.

The euro is surging against the US currency as this is being written with a clear break above $1.28 which is also a clear piercing of the very flat top of the Ichimoku cloud for EURUSD on the daily chart which sits at $1.2790.
Once again rather than fight the flow of macro funds which are decidedly hostile (for now at least) to the US currency I would prefer to monitor EUR/JPY which may provide better scalping opportunities on the short side during today’s session.

The Hang Seng Index encountered resistance at the 20680 level exactly as discussed in this column recently.


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

DBV  PowerShares DB G10 Currency Harvest  

DBV has reached the $23 target and I am now flat.

INTC  Intel Corporation  

The chart for Intel demonstrates not only the power of Ichimoku cloud formations for setting targets but also the classic gap and trap predicament for those who trade on "news".

AU  AngloGold Ashanti Limited (ADR)  

AU has a more convincing bear flag pattern than many in the gold mining sector

LRCX  Lam Research Corporation  

Lam Research (LRCX) has a wonderful example of a gravestone doji.

SLV  iShares Silver Trust  

SLV is still tempting me on the short side - the bear flag has caught my attention but I have refrained from taking a position so far. Any move up towards the descending trend-line would allow me the excuse to pull the trigger.