Daily Form November 16, 2010

Inter-market Technical Analysis using algorithmic pattern detection

TUESDAY NOVEMBER 16, 2010       10:56:00 GMT

There will not be too much commentary today as the charts are displaying themes which have been covered here at some length in recent weeks.

Just a general observation, statistics are revealing that there are not only signs of life in key economic data, but the release of inflation data in China, India, even the EU and UK on Tuesday morning are getting a little too hot for comfort. And this is happening just when almost everybody assumed that buying fixed income instruments was a one way bet.

Whatever happened to the not too hot/not too cold characteristics of a tepid recovery that made bad news good news for markets?

The Shanghai exchange took another 4% nosedive in Asian trading but now has reached a potential chart support level which also coincides with the 50 day EMA.

The 62% retracement level on the S&P 500 cash index at 1228 has revealed itself to have been a key resistance barrier and at present the balance of probabilities suggests that further downside testing is now likely.

We shall soon discover whether the mantra "don’t fight the Fed" -- which clearly wants higher stock prices to make us all feel wealthier -- is starting to lose traction. As previously suggested if forced in to a position on this I would still err on the side of favoring higher asset prices as Mr Bernanke will prioritize that objective over any concerns about inflationary forces becoming more of a concern down the road.

Yesterday I expressed some shock that the yield on the 5 yr UST had have moved up 30 basis points since November 4th, well we can now add even more surprise to the fact that after yesterday’s session it has now moved up 50 bps from the intraday high to the low on November 4th.

The Hang Seng Index has fallen back below the 62% retracement 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.
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LQD  iShares iBoxx Invest Grade Corp Bond  

LQD, a fund for investment grade corporates, is also correcting at a slightly alarming rate with a large gap down yesterday following a drop below the cloud formation.

PCY  PowerShares Emerging Mkts Sovereign Debt  

PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, is now falling on substantial volume as anticipated here in previous discussions.


The formation on the daily chart for CAD/JPY suggests that a significant base is in place, and with further progress through broken trendlines which tracked the descent of the Canadian dollar while the yen was in its super strengthening phase, this pair has plenty of scope for long term appreciation, with an intermediate term target indicated by the dotted line on the chart.


EUR/USD has taken out several layers of chart support and the prevailing posture should be one of selling any abrupt rallies based on good news about EU growth (it's only happening in Germany) or on talk about "solutions" to the sovereign debt crisis (that story has a very long tail).