Daily Form November 17, 2010

Inter-market Technical Analysis using algorithmic pattern detection

WEDNESDAY NOVEMBER 17, 2010       11:48:00 GMT

Yesterday was a tumultuous day for capital markets and much of the focus was on the deterioration in the standing of the Eurozone finance ministers as credible custodians of the single currency.

We were all reminded that the Eurozone is really nothing more than a "currency club" in which the member states have to agree unanimously on most major issues.

Yesterday saw the Finnish government pushing back on a package for Ireland and, it has now been confirmed this morning, the Austrian government has withdrawn support for further bailout monies for Greece because of their serial mis-statements (to put it politely) of the extent of their budget deficit.

Meanwhile global equities are taking it on the chin as asset allocators are reining back on their previous appetite for risk assets with emerging market equities and debts suddenly looking a lot less attractive than they did just two weeks ago.

The Nasdaq 100 index seems likely to find support at the 2060 level as illustrated on the daily chart below.

EUR/USD has seen some short covering during European trading on Wednesday morning but the $1.3350 level indicated on the daily chart looks to be a likely target for testing in coming sessions.

CMF, the exchange traded fund which tracks California’s municipal debt, and which was discussed in Monday’s column shows that, while the headlines may be more about the woes within the EZ, there are serious issues for credit markets with US municipal debt as well.

Having been early (see here) on my short recommendation for PCY, the exchange traded fund which tracks the sovereign debt from emerging markets, the prognosis for a meaningful correction has now been validated.


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

YCS  UltraShort Yen ProShares  

I alluded to being early on PCY and the same could be said of the observation made here in late October regarding the likelihood of a correction in the Japanese yen.

The exchange traded fund, YCS represents a leveraged vehicle which rises on yen weakness. I am not trying to call a bottom in the dollar/yen rate but I would say that for those with a longer term horizon there are some technical suggestions that the US currency looks "sold out" against several currencies, and in particular the yen.

Sometimes with positional plays the risk/reward calculus favors being early rather than late as the downside on entry in this fund even three weeks ago was relatively limited and there is still plenty of scope for further advance by the US currency.

I made the following observation yesterday on Twitter when the euro was getting roughed up:

Traders are coming to their periodic realization that, in times of stress, the US dollar is the world's worst currency, apart from all the rest

INP  iPath MSCI India Index  

INP which tracks the MSCI India index is one of several ETF's that are available and attractive for strategic shorting when the risk on mania gets ahead of itself. The Mumbai Sensex dropped back by more than 2% in Asian trading today and the chart suggests that the bottom of the cloud formation is a target level where short covering would be appropriate.