Macro risk analysis - Daily Form for June 8, 2011


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY JUNE 8, 2011       06:11:00 GMT




I am writing today’s column earlier than usual - Asian markets are still open and European markets will not be open for another couple of hours - as I have an all day commitment.

The main story from yesterday’s session was Bernanke’s widely reported speech on the economic outlook and monetary policy. It seems to have been the judgment of the pundits that the Fed chairman has ruled out the possibility of any near term supplement to the existing QE2 program which will conclude at the end of this month.

Reviewing the S&P 500 futures chart at present on the daily chart (see below) the index has now broken below and closed below a key trend line. There is a strong likelihood, in my estimation, that 1280 now needs to be robustly tested, and should that fail - and if prop trading desks and funds really want to send a "distress" signal to the Fed that without further monetization programs they cannot be relied upon to support equity prices - then we could see a rather sharp and abrupt move down the 1240 level in coming sessions.

There are still a lot of asset managers that will want to buy on the dips and there is likely to be some near term volatility as the bulls and bears struggle for control. As always the key to how this struggle will be resolved may well be found in the broader currents across other asset classes and specifically FX. As suggested yesterday my focus will be on looking for signs that the euro and the Australian dollar might be revealing evidence of intermediate term "peaking".



The configuration on the daily chart for the Russell 2000 is also suggesting that the very positive environment for equities which has prevailed since last August, when Ben Bernanke first articulated the QE2 program, now seems to be ebbing away.



Yesterday’s suggestion that instigating short positions on AUD/USD ~ 1.0740 turned out to be prescient.

As the hourly chart reveals the US session failed to reach above this level and during the last few hours of Asian trading we have dropped down almost 100 pips from the trigger level proposed.

In general the current dynamics are suggesting that traders are looking for rallies to get short and this would lend plausibility to my intermediate term target for the Aussie against the dollar the base of the daily Ichimoku cloud around 1.040.



Perhaps the most useful chart for detecting the overall level of risk appetite across multiple asset classes can be seen in the weekly chart for AUD/CHF.

The line drawn at 0.90 on the chart illustrates how critical the current position for this FX pair is, and with pending Aussie weakness and continued safe haven buying for the Swiss franc it would appear that there is increasing doubt that this level can be preserved.


Macro risk analysis - Daily Form for June 7, 2011


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY JUNE 7, 2011       11:32:00 GMT




At the time of writing there are cross currents in the markets I follow which are suggesting that today’s action during the North American session could be erratic and directionless. The euro is continuing its upward trajectory - which in my estimation is largely due to the unwinding of some very large short positions by macro funds built up prior to the new "rescue" of Greece (actually the final nail in the coffin in my humble opinion) and yet the US dollar is showing some evidence that it may be finding a bid against other currencies.

As can be seen on the 240 minute chart for the S&P 500 futures (eMini June contract) the index is trying to rally back above the key trend line which has been violated following Friday’s weak data and a re-appraisal by decision makers on their appetite for risk. Some of the correlation analysis which I do suggests that there are several similarities between those FX/ETF pairs that were registering extreme readings in May 2010 and the data today.

As readers will recall equities sold off last summer and the current macro-risk environment is suggesting that we may be in for a similar episode in the next few weeks. As suggested here last week I continue to favor a trading stance of selling any bouts of enthusiasm for US equities.



Eurozone retail sales data was released this morning (June 7) and came in quite a bit stronger than expected which created some upward momentum for the DAX.

However the chart formation suggests that the index will face considerable overhead resistance around the 7350 level.



After a holiday in China yesterday the Shanghai exchange once again demonstrated that the 2700 level is a key support level. However this index has a lot of lost ground to make up and the fact that the 50 day EMA is descending down towards the 200 day EMA again is indicative of a lack of sustained commitment to this market by large asset allocators.



The Brazilian index took a tumble in yesterday’s trading and looks set to re-test the May low.






TRADE OPPORTUNITIES/SETUPS FOR TUESDAY JUNE 7, 2011


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





AUDUSD    

The hourly chart for AUD/USD is pointing to growing resistance in the region of $1.0740 and this is currently my target level for instigating short trades with an intraday scalping horizon




EURUSD    

Due to some technical difficulties I was not able to comment yesterday on the market action Friday in the wake of the weak NFP report.

One of the more interesting reactions to the data was the surge in EUR/USD which saw the currency move above the $1.46 level which I had targeted based upon the daily Ichimoku cloud formation seen on the chart below. The euro peeked above the cloud last Friday but came to rest almost exactly at the top around $1.4640. After a drop back into the cloud the currency is now moving higher in what appears to be one more attempt to crack the $1.50 level.

In my estimation the action, as the single currency flirts with this pivotal level in coming sessions, could be a harbinger of what lies in store for risk appetite in coming weeks. If we were to see a successful challenge to this critical level where there is substantial overhead resistance this would point to perhaps a more benign environment for risk assets in general. If however we see another failure - which is more probable in my opinion - the failure could mark an intermediate term top for global equities.




XLY  Consumer Discretionary SPDR  

The chart for XLY, the exchange traded fund for the consumer discretionary sector, reveals the "re-thinking" about the vitality of the US consumer sector in the light of Friday's NFP data.

There is chart support at the $38 level which would act as a deterrent for me to be shorting the sector, although longer term, my intuition is that we are headed lower.




XBD    

The index for investment banks and brokers, XBD, shows that this key sector in the financial economy is very much out of favor as there are strong headwinds for several of the major firms in the sector - especially Goldman Sachs. I would stay away from the big names in the sector for the time being.




XLF  Financial Select Sector SPDR  

XLF is also showing extended weakness but is approaching a chart level where a snap back rally and buying support could become evident.




EPU  iShares MSCI All Peru Capped Index  

EPU is an exchange traded fund which provides access to Peruvian equities and, the 13% drop yesterday may not be the end of the selling after a socialist president was elected receiving more than 50% of the votes, and dampening the "animal spirits" of some of the EM bulls who had been quietly and steadily building positions in this frontier market.



Macro risk analysis - Daily Form for June 3, 2011


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY JUNE 3, 2011       11:02:00 GMT




The big picture that has emerged during the last few sessions is that global equities are now coming under considerable pressure as asset managers are preferring to "hide out" in global government bonds (except of course for the EZ periphery) rather than take on more risky assets.

The question is - to paraphrase Art Cashin from UBS (a CNBC regular for those who don’t watch) - whether bad news really is bad news for stocks. We may be a little closer to knowing the answer to that in a few hours when the US Dept of Labor release the NFP report for May.

As can be seen from the 240 minute chart traders have positioned themselves defensively right at the base of the range over the last few weeks. Of course, it could be that there will be a lot of fireworks after the data is released but that, later in the session, the S&P 500 may well drift back to close not far from where it is right now.




One sector chart which should be monitored closely in coming sessions is for the US retail sector (RLX).

The recent action which includes a break below the 50 day EMA as well as a peek below the cloud formation suggests that the 500 level may now be the next target in the intermediate term. A topping out for US consumers - as would be suggested if this index fails to find support soon - would not be a good development for risk appetite...but then again could it be the trigger for more QE?



Sterling has dropped to a new low in recent history against the Swiss Franc as can be seen on the weekly chart. This validates the viewpoint that was expressed in a piece I blogged recently and which was reprinted here.

The focus on the action in GBP/CHF - as indicated in previous discussions regarding EUR/CHF - illustrates why it is better to play most other currencies against the Swiss currency rather than the dollar as the trends are far more evident in cross rates against the franc.



The Hang Seng index dropped 1.3% in Asian trading Friday, and came to rest for the week at exactly the 200 day EMA.

Interestingly the Shanghai index diverged against the Hong Kong market and continued its bounce off the 2700 level.


Macro risk analysis - Daily Form for June 2, 2011


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY JUNE 2, 2011       10:27:00 GMT




Yesterday’s trading, after the release of the ADP data and other signs that the US economy is far from exhibiting any dynamism, did not bode well for the Risk On funds and trading desks. Having said that some of the more agile have learned to turn on a dime, and in the highly correlated markets that presently exist, it became obvious to short all of the usual suspects and seek out the safe harbor of UST’s.

Was enough damage done yesterday to turn the tide against equity bulls? I personally doubt it. The simple fact is that yields on UST’s are not going to supply the kind of returns that will produce healthy fees for hedge fund managers, and risk has to be embraced. While the Fed remains the ultimate back stop there is still reason to believe that bad economic news, will courtesy of Chairman Bernanke, see that the seemingly unstoppable expansion of public balance sheets will lead to such abundant liquidity eventually pushing equities higher.

The 240 minute chart for the S&P 500 futures shows - now with the benefit of hindsight - the phoney breakout from the descending channel which occurred while the US was commemorating Memorial Day. The late rally in Tuesday’s session strongly suggests that some trading desks were moving prices up for better short entries in anticipation of the release of key data in the latter part of this week.

In my estimation there is mounting evidence that the world economy is slowing down and there is a distinct possibility that there could be negative growth (to use the ironic oxymoron) ahead for some markets - especially in Europe. However with fiscal gridlock, not only in the US but in many of the "advanced" economies, the only lever that governments have to prop up asset prices is to keep expanding their public balance sheets, and until the bond markets cannot digest any more paper (not likely while the Fed, BOE and ECB keep buying the stuff) then equities should avoid the plunges which are more typically seen when monetary policy is less accommodating.

Having said that, and as if to underline the bipolarity which characterizes the new normal in investing, I would prefer to sell rallies in equities rather than hold long positions overnight!



The yield on the five year UST has come down to a key technical level where, absent some Armageddon event such as the collapse of the euro (just joking), then one would expect to see a bounce up in yields. Especially notable on the chart is the cloud formation and the horizontal trend line coinciding at the 1.6% level as highlighted in yellow on the chart.

However, as just commented in reference to the S&P 500, I would suggest that expecting higher yields in the near term is more of a scalping opportunity than a positional play.



Using quantitative analysis as a tool for "forecasting" price development can be quite error prone and I readily admit to some miscalculations. For example, last week I suggested that the exchange traded fund, AGG, which tracks corporate investment grade bonds, was showing negative divergences. Well it is now still showing them but at a quite higher price than last week.

One instrument which I have been consistently right about has been to maintain - as a long term play - a short position in EUR/CHF. This pair has been registering new lows on an almost daily position in recent weeks.

Reviewing the chart I am now taking off most of the position and would expect in the intermediate term to see a test of the lower boundary of the horizontal channel shown on the daily chart.



The candlestick registered in Asian trading today (Thursday June 2nd) suggests that while the Shanghai market, in harmony with all of the Asian markets, sold off on the poor trading in the US yesterday, the damage was relatively confined.

2700 still seems to be a valid support level and I would be more favorably disposed to a recovery in this market rather than to expect a prolongation of the recent weakness.


Macro risk analysis - Daily Form for May 31, 2011


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY MAY 31, 2011       11:15:00 GMT




In Friday’s column I pointed to the rather over-stretched downside action in the Shanghai index and concluded with the comment that I would expect to see a counter-trend rally in next week’s trading.

In Asian trading on Tuesday the index moved up 1.4% after registering a doji star in Monday’s trading and the more aggressively oriented Hang Seng Index registered a 500 point upward move and a 2.2% gain.

Targets for the intermediate term on the Shanghai could be ratcheted upwards from the 200 day EMA at 2860 all the way up to the base of the cloud formation above 2900. As discussed below, the exchange traded fund, PGJ, would be one vehicle to look at as long as the relief rally prevails.



Also as suggested on Friday the continuing weak economic data coming out of the US is actually supportive of higher equity prices. Despite the Memorial Day holiday in the US yesterday (and the UK also was closed for a bank holiday) the S&P 500 futures have made quite significant progress since the close of North American trading last Friday.

The break above the trend line drawn on the 240 minute charts activates targets in 1350’s again.



The last time I discussed AUD/USD I indicated that the Aussie was having difficulty in breaking above the cloud formation on the daily chart.

This condition has persisted and I would suggest that the balance of probabilities is now favoring further consolidation within the cloud and, should we see a clear break below the level indicated on the chart i.e. 1.0470, this would then expose the 1.0350 level at the base of the cloud.



PGJ, is an ETF which invests at least 80% of total assets in equity securities of companies deriving a majority of their revenues from the People’s Republic of China, and, as indicated above, I would be looking at a long position with a target of approximately $28.


Macro risk analysis - Daily Form for May 27, 2011


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY MAY 27, 2011       11:23:00 GMT




The Chinese market has dropped for the last several sessions and the Shanghai index closed Friday’s session just above the 2700 level which is an area of chart support and also right on the 20 day lower Bollinger band.

One would expect to see a counter-trend rally in next week’s trading.



1325 is now a technically significant level for the S&P 500 futures as indicated on the hourly chart. In yesterday’s commentary I noted that the background environment remains reasonably supportive for US equities and after yesterday’s weak data on GDP and jobs one has to factor in the possibility of possibly new initiatives by the Fed to support asset prices during the summer months.



Fading rallies on EUR/USD has been quite profitable this morning and the 15 minute chart - a lower time frame granularity than I normally feature here - shows that $1.4180 is a fairly key level for the single currency for the remainder of today’s trading.

A break below that would expose two more key support levels at 1.4080 and then the low from Monday’s trading in the vicinity of $1.40.


Macro risk analysis - Daily Form for May 26, 2011


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY MAY 26, 2011       10:57:00 GMT




As we head into an extended weekend with Monday as a holiday in several markets, markets are lacking any sense of conviction and direction. As an illustration of the scarcity of any catalysts to move FX and equities there was some effort to rally the euro in Asian trading based on releases that the Chinese were looking at supporting the EZ’s financial stability facility - the EFSF. The only problem with this story is that it is really old news and the PBOC has shown on a number of occasions that it wants to support the EZ and the euro. As the largest holder of liquid reserves - including a huge amount of euro denominated paper - it would be foolhardy for them to say anything other than that they support the EZ and its currency.

The SP 500 futures are struggling at the 1320 level but my intuition is that there was too much zeal in selling risk on assets on Monday - that was the day that EUR/USD was pushed to the $1.40 precipice - and that the slow and grinding short covering could continue into to the weekend, providing a neutral to positive environment for US equities. However, I say that without much conviction. To move to something on which I have more conviction - no matter what the short term direction in EUR/USD, the trend in EUR/CHF remains decidedly bearish for the EZ currency against the Swiss franc, as new historic lows for the pair continue to be registered.

Readers may wish to have a look at a rather gloomy assessment of the prospects for the single currency which can be found here.



GBP/USD has rallied in harmony with the EUR/USD short covering already alluded to, and is now in the zone between $1.6280 - $1.6330 where I am looking to sell further rallies.



The daily chart for AGG, an ETF which tracks investment grade corporate bonds, is revealing negative divergences close to a multi-period high.



It has not been a favorable environment recently for EM investors, and the chart for Vietnamese equities suggests that embryonic EM markets should still be categorized as "very high risk".


Macro risk analysis - Daily Form for May 24, 2011


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY MAY 24, 2011       10:18:00 GMT




Using a fibonacci grid overlaid on the 240 minute chart for the S&P 500 futures (June e-Mini) the sell off yesterday reached down to the 23.8% level measured off the low seen on the chart below. Technically the case could be made that we should now go back and re-test the 38% level which is in the vicinity of 1322.

Given that the masters of market timing, Goldman Sachs, are now telling clients that the commodities correction is over I would even expect 1325 on the futures to be tested again soon - quite possibly today.

However, as indicated on the chart the highlighted area between 1320 and 1325 is likely to be choppy and only suited for scalpers. While bad economic news has been good news for equities for the last 2 years, as Chairman Bernanke remains super accommodative, the risks from another financial accident in the Eurozone remain high, so outright long positions in US equities are not on my agenda for the time being.



Related to the positive call on commodities one has to take a good look at AUD/USD and as the daily chart indicates the Australian dollar reached a fairly critical level during yesterday’s session.

The fact that we have bounced off the cloud suggests that a short term rally may be ahead but longer term, the violation of the sloping trend line on the chart suggests to me that the $1.0340 level will need to be tested.



Given the acumen of the GS prop trading desk it may well be time to look at XME which is reaching an area of chart support and appears to be washed out from an MFI perspective.



The US banking stocks - as represented by the KBW Banking index - have reached an area of probable chart support and one way to gain exposure on the long side to this sector is through KBE, the ETF which tracks the sector.

However I would not be looking at maintaining a long term position here, but rather a re-visit to the 50 day EMA as it is descending to converge with the 200 day EMA. If the sector fails to perform well in coming weeks - which is the way it looks likely to unfold - this would suggest that the troubles within the US and global banking sector are likely to move into the foreground again this summer.


Macro risk analysis - Daily Form for May 23, 2011


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY MAY 23, 2011       08:15:00 GMT




The Shanghai Composite closed Monday’s session with a drop of almost three percent.

The technical picture, as seen on the daily chart below, shows that the index is hanging on by its fingertips to a fairly critical level around 2770. The following characteristics are all pointing to the critical levels that lie ahead.

  • The uptrend line through lows over the last several months is now in danger of being violated.
  • Today’s candlestick was a red trend day with the open at the high for the session and a failure to break back into the cloud formation
  • The close for today’s session has broken below the 20 day Bollinger Band which has been drawn with the bands set at 2.5 standard deviations from the mean. The probability of this happening is approximately 2%.

    The last point suggests that a short term bounce could arise in the next couple of sessions but, the clear exit from the green cloud formation suggests that this index will be definitely struggling to regain positive momentum in the intermediate term.



    The S&P 500 futures are sliding as a clear risk off mood has been evident in Asian trading and is setting the tone as European traders in FX are pressuring the euro and commodity currencies.

    The 240 minute chart suggests that if 1315 which has been highlighted is taken out -- which seems highly probable - then the bears will be targeting a test of the 1290 in the near term.



    EUR/CHF has broken decisively below 1.24 and at the time of writing is now at a new historic low around 1.2350.

    While much focus will be on the EUR/USD rate - which at the time of writing looks ready to break below $1.40 - the attrition in the euro against the Swiss franc underlines the fact that the smart money in Europe is exiting the single currency in droves.

    On the subject of the highly unstable situation with regard to sovereign debts of EZ states and the uncertainties posed by the demise of Dominique Strauss-Kahn, readers may find the following article on the selection procedure for electing a new IMF head worth a look. The article also contains some comments on the lack of a coherent strategy (at least so far) from the BRIC nations, especially China, to use the election process as a way of addressing the outmoded nature of the IMF’s voting structure.



    GBP/USD has had a 1.6 handle for most of this calendar year, but the likelihood of a drop back into the 1.50’s is increasing as the dollar is gaining a bid in the midst of the troubled state of the EZ.

    My forecast for this week’s range would be $1.6280 on the upside where I would want to be a seller and $1.5850 on the downside where I would be prepared to nibble on the long side.






    TRADE OPPORTUNITIES/SETUPS FOR MONDAY MAY 23, 2011


    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





    DBC  PowerShares DB Commodity Idx Trking Fund  

    DBC, a sector fund tracking overall commodity prices, shows that bearish flag/pullback patterns are in evidence which translates into an overall trading stance of seeing all rallies as opportunities to build new short positions.




    PPLT  ETFS Physical Platinum Shares  

    PPLT, an exchange traded for platinum, is another candidate where aggressive hedge funds will tend to see any strength from rallies as opportunities to either unload existing long positions or initiate new short positions.




    AUDCHF    

    AUD/CHF, often discussed in this commentary as a useful barometer of macro risk, seems destined to test the level indicated by the arrow on the chart during the course of this week.



  • Macro risk analysis - Daily Form for May 9, 2011


    Inter-market Technical Analysis using algorithmic pattern detection


    MONDAY MAY 9, 2011       08:39:00 GMT




    Amongst the many contributory factors to last week’s massive liquidation of long positions in many commodities was an accompanying unwinding of many of the FX pairs which are supportive of risk on positioning. The Australian dollar succumbed to the selling pressure which was becoming evident on the charts after achieving a key objective of peeking above $1.10, the yen strengthened, and on Friday afternoon there were rumors that Greece might be contemplating an exit from the Eurozone.

    Whether or not these rumors amount to anything - and they just might - the reaction for EUR/USD and other key cross rates was to add further to the plunge instigated by J.C. Trichet’s less vigilant remarks after Thursday’s ECB rate decision.

    Silver was an accident waiting to happen and I would still stay away from that metal, gold could be a better bet but there is a short term bear flag developing on the spot chart for the precious metal. The commodity which suffered one of its worst trading weeks in many years was crude oil.

    While there would seem to be a capacity for a bounce in crude - and OIL, the exchange traded fund could be a useful vehicle - my suspicion is that the primary beneficiary from improved "sentiment" based on less influence from the raw materials inflationistas will be equity markets.

    The hourly chart below for the S&P 500 futures shows that a downtrend line has been pierced and targets back in the mid 1350’s seem feasible in the near term.

    I am very pleased to have been invited as a guest speaker to the China FX Forum to be held in Beijing this Thursday, details of which can be found here .
    As I shall be travelling during the rest of this week, the next Daily Form commentary will not appear until early next week.




    When I last wrote about GBP/USD last Thursday - right after the BOE and ECB rate decisions - the current prize zone was targeted.

    Sterling has been in decline during European trading this morning and the inaction by both the BOE and the ECB suggests, to me at least, that the key zone between $1.6420 and $1.6380 is now in play.

    The current level around $1.6380 is a pivotal one for sterling, and it was the breakthrough the current zone which propelled GBP/USD to higher levels towards 1.70.

    To a large extent the near term direction of sterling will be influenced by the trajectory of the euro - which still remains in an uptrend on the daily chart but where a failure of the key $1.4240 level for the EZ currency could assist in knocking out the support for sterling.

    As always the relative "strength" of both the euro and sterling speaks volumes about persistent US dollar weakness, as it is only that which is enabling both European currencies to hang on to their relatively positive patterns against the US currency despite their own domestic issues which would suggest lower values.

    Indeed GBP and EUR are not faring so well as can be seen in the comparative chart with the Swiss franc below.



    Regular readers of this column will recall that I have maintained a long term positional play where I remain short the euro against the Swiss franc.

    The news on Friday and the ongoing problems facing the peripheral EZ states are not going to be solved any time soon and the 1.25 level looks attainable again, at which point I may lighten up the position somewhat and wait for another move up in the euro towards 1.28 before re-instigating additional short positions.



    Measuring the relative strength of various currency pairs can be done using a separate benchmark such as determining the price of gold for each currency, and then creating an index to see how much more or less the gold price in that currency is now rather than it was priced at the base period for the index.

    The method chosen to prepare the chart above is simply to contrast the current relative performance of six major currency pairs - each with the Swiss Franc as the base currency. The starting period chosen is the end of July 2007 which marked an important inflection point for most FX pairs.

    The results clearly show that GBP/CHF is the weakest pair, and as of the Friday May 6th closing price, sterling is 38% less valuable against the Swiss Franc than it was at the end of July 2007.

    The other results are as follows, in descending order:


    • JPYCHF is up by 2%
    • AUDCHF is more or less at par
    • CADCHF is down 18%
    • EURCHF is down 20%
    • USDCHF is down 30%


    The strength of the yen underlines the peculiar position that the Japanese yen occupies in the FX market - both as a key component of the FX carry trade, and, less now than a few months ago, indicative of the yen’s traditional relative safe haven status even vis a vis the Swiss franc

    Of the key commodity currencies the Australian dollar has more or less retained its position at par value, while the Canadian dollar has performed more or less in line with the euro, as both have declined by similar amounts of approximately 20%.

    The US dollar has declined by 30 % but the wooden spoon clearly goes to sterling.

    Unsurprisingly, the notable under-performance of GBP/CHF, and the associated lack of purchasing power of sterling, is manifesting itself in higher domestic inflation in the UK

    What is perhaps more remarkable is that yields on 10 year gilts are still relatively similar to those on 10 year bunds and 10 year UST’s, indicating that global asset allocators are not demanding much of a risk premium for holding obligations in, by far, the weakest of the major currencies.


    Macro risk analysis - Daily Form for May 5, 2011


    Inter-market Technical Analysis using algorithmic pattern detection


    THURSDAY MAY 5, 2011       12:30:00 GMT




    There is a line of chart support illustrated on the 240 minute chart for the S&P 500 futures which is very close to the current level around 1336.

    However, several technical indicators are at high risk levels raising the possibility of large scale risk on asset liquidations so I will be standing aside on US equities until the FX/commodities backdrop becomes more transparent, which I would expect to occur during the next 36 hours of trading.

    A break below 1325 could bring out a band wagon of short sellers - and especially worth monitoring in trading today and tomorrow is the performance of USD/JPY as the abrupt strengthening of the yen was the trigger to the flash crash which occurred exactly one year ago tomorrow.



    The BOE has not budged - which was not a surprise - but nor has M. Trichet which was perhaps a little bit surprising. But weak economic data in Australia plus the unwinding of some large risk on trades is causing a lot of selling in the Aussie dollar. In characteristic fashion, the liquidity on the way down for this currency is often thin and this accelerates the down thrusts.

    AUD/USD broke way below my initial target of $1.0775 laid out here earlier this week, and the next two retracement targets, while the commodity/risk on players run for cover, are indicated on the 240 minute chart below.



    Sterling has been in decline during European trading this morning and the inaction by both the BOE and the ECB suggests, to me at least, that the key zone between $1.6420 and $1.6380 is now in play.



    USD/JPY has fallen below the 80 level, raising some possibility of central bank intervention but the underlying message from the chart is that the unwinding of some FX carry positions is accompanying the retreat from risk.






    TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MAY 5, 2011


    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





    SLV  iShares Silver Trust  

    The bloodbath in silver continues as there has been a complete evaporation of bids in the last few sessions.

    SLV closed yesterday's session in the vicinity of $38 but the spot market has broken down further into the $37 zone in trading since the ETF closed trading yesterday. However I would stand by my target from earlier this week, and even though I would certainly not be a buyer I would exit all short positions for the time being.




    DBV  PowerShares DB G10 Currency Harvest  

    Yesterday's comment on DBV is worth repeating:


    DBV, which acts as an ETF proxy for the FX carry trade, appears to have stalled at the top of its rebound from the Japanese selling climax in late March.





    BKF  iShares MSCI BRIC Index  

    BKF, one of the main sector funds which track the BRIC economies, could find some support from both the 200 day EMA as well as the cloud formation. Also evident on the MFI chart is the distribution which has been taking place in the EM asset class over the last few weeks.




    RSX  Major Vectors Russia ETF  

    RSX, an exchange traded vehicle providing exposure to Russian equities, is falling along with the energy complex and the 200 day EMA would seem to be a feasible target.




    OIH  Oil Services HOLDRS  

    OIH, one of several exchange traded funds in the energy related field, looks vulnerable - perhaps down to the level indicated by the arrow on the chart.




    DBC  PowerShares DB Commodity Idx Trking Fund  

    Thursday's European session has revealed several clear manifestations that risk aversion is now uppermost for many fund managers. Commodities are getting sold across the board as well as the commodity currencies.
    An anticipation of this can be found in this comment from Tuesday's column


    DBC, a sector fund tracking overall commodity prices, is revealing some negative MFI and RSI divergences.