Daily Form September 24, 2010

Inter-market Technical Analysis using algorithmic pattern detection

FRIDAY SEPTEMBER 24, 2010       11:08:00 GMT

The 240 minute chart for the S&P futures (December) indicates the potential for a test of the lower boundary of the cloud formation at approximately 1110. There has been a bearish Ichimoku crossover signal already registered, but I would prefer to wait for further validation that a tradable correction has begun before taking any position on this index.

A failure to regain a foothold above 1130 during today’s session would motivate me more towards stalking entry opportunities on the short side, if not later today then during Monday’s trading.

One of my preferred commentators, Ambrose Evans Pritchard, makes the interesting comment in a column today regarding the deteriorating position in Ireland, which may become a contributing factor to another relapse in the "animal spirits" as we move into October.

Spreads on Ireland’s 10-year bonds have risen to 405 basis points. Gavan Nolan from Markit said credit default swaps measuring bond risks on Irish banks are nearing the levels of Icelandic banks shortly before they defaulted two years ago, reaching 955 for Anglo Irish (senior debt), 615 for Allied Irish and 530 for Bank of Ireland.

While writing this during Friday morning trading in Europe spot gold is within a dollar of breaking through the $1300 barrier and perhaps not coincidentally the US dollar is in danger of dropping below the 0.98 level against the Swiss Franc. The euro seems headed towards $1.35 during today’s session and I have had a couple of quick long trades on EUR/GBP.

Further deterioration in the dollar and further strengthening of gold will certainly pose dilemmas for the reflation traders.

The hourly chart for USD/JPY reveals a dramatic reversal following what appears to have been a further round of BOJ intervention in Asian trading. The cynic might add that the PBOC (Chinese central bank) is the BOJ’s biggest customer and appears, from anecdotal evidence, to like the yen even more when the BOJ tries to cheapen it.

This represents a completely new dimension to FX trading than the relatively uncomplicated days of yesteryear when the "major" economies could reach accords on FX intervention. Rather the growing tensions between Japan and the US with respect to the strength (or lack of) of the yuan could escalate into yet another reason why global capital flows will become more capricious and risk off might seem more appealing again.

Earlier in the week I took note when the Russell 2000 put in a very good showing which suggested that the appetite for micro caps could help to see the broader market move decisively above 1130 and remain there.

However, as the chart reveals, it is becoming problematic that this index appears to be failing at marginally lower highs in its efforts to reach back to the critical 680 level.


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

DIS  Walt Disney Company The  

Walt Disney (DIS) looks vulnerable to further weakness.

GS  The Goldman Sachs Group Inc.  

Goldman Sachs (GS) is not behaving well although I hesitate to recommend a short position as this is one of the trickier stocks to trade in my experience.

IAI  iShares Dow Jones US Broker-Dealers  

An exchange traded fund which tracks the investment banks, IAI, has broken a key trend line and out of the cloud formation on heavy volume suggesting that we may be setting up for a triple bottom test in coming sessions.


EUR/JPY is tempting based on the resilience in the euro and the fact that the BOJ just might have another shot later today in trying to weaken the yen and make it stick.

However as the daily chart indicates there is a lot of overhead resistance above 114 and apart from buying on sudden pullbacks with relatively quick exits I would not recommend "position trading" this pair until the efficacy of the BOJ's efforts becomes clearer.

EWC  iShares MSCI Canada Index  

Here again is a comment from the September 16th newsletter:

The daily chart for EWC, a sector fund for Canadian equities which tracks the MSCI Canada Index, caught my attention this morning as the candlestick pattern and yesterday's heavy volume could be the precursor to a corrective move.

YCS  UltraShort Yen ProShares  

If the BOJ can come up with a sustainable strategy for weakening their currency, the exchange traded YCS (a leveraged vehicle which rises on yen weakness) is the place to be.