Daily Form March 31, 2011


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY MARCH 31, 2011       11:01:00 GMT




The Russell 2000 has continued racing ahead of the pack, and as we approach the end of the quarter, it is just conceivable that a last minute spurt could see this micro-cap index challenge the previous historic high of 856 seen on July 13, 2007.

Remarkable in many respects, but readers will recall that the beta analysis provided here just over a week ago supported the view that there is a hunger for the micro-caps amongst fund managers who have so much liquidity to play with, that the new normal seems to be one of seeking out those assets which from a historical perspective are associated with relatively high risk.

Let’s hope that, after the end of quarter portfolio lipstick has been applied, these micro cap darlings don’t turn into ugly ducklings!



The chart for WTI Crude futures (May contract) is displaying a pattern on the 240 minute chart which has the appearance of an evolving cup with handle formation.

If the contract takes out the top of the cup ~ 106.60 then there could be a rather abrupt range expansion move to the upside. The situation in the Middle East and North Africa continues to provide a level of anxiety about supply and the real possibility that policy makers will be dissuaded from pro-nuclear positions for future energy supplies will only add to demand for carbon based fuels. Just as an aside the big upset for Angela Merkel in regional elections on Sunday was largely based on the Green party in Germany playing to the fears of the electorate about future nuclear plant developments in Germany.



Here again is my comment from Tuesday’s commentary

EUR/JPY is approaching the top of a well defined range or channel on its daily chart which has prevailed for more than a year

The critical level is 116 and a break above that level would open up a move to the 120 level which is indicated as the target level of the weekly Ichimoku chart pattern.


Of all the FX possibilities at present for position traders this one would appear to be one of the most compelling on the long side. I would plan to exit part of the position at 120 and even leave a smaller remainder for a possible move to the actual top of the cloud at 122.



AUD/CHF, on the weekly chart, is revealing a doji star and that, in my estimation, captures the essence of the macro risk environment - evenly balanced in the short term but a sudden drop would both reflect and contribute to a more cautious approach to risk assets.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MARCH 31, 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





XLV  Health Care Select Sector SPDR  

XLV - a sector fund for health care - shows that a possible island formation could develop and the MFI chart would suggest that there are more attractive economic sectors to be positioned on the long side.




XRT  SPDR Retail ETF  

XRT, an ETF for the retail sector, shows a similar pattern to that seen above for XLV.



Macro Daily Form March 29, 2011


Inter-market Technical Analysis using algorithmic pattern detection


TUESDAY MARCH 29, 2011       11:04:00 GMT




The Nikkei 225 has entered a holding pattern registering relatively minor moves in contrast to the much more dramatic moves following on from the tragic events which began on March 11th and which, to some extent, are still unfolding in Japan.

As can be seen from the fibonacci grid the current price has stalled at the 50% retracement level of the entire move down from the most recent peak to the panic low of 8227 seen in trading on March 15th

There is a level of notable chart support around the 9200 level, but in order to get bullish on the longer term prospects for the index one would want to see a break above the 62% retracement level of 9872.



The S&P 500 futures (June e-Mini) contract - is showing a negative tone in European trading on Tuesday morning and threatening to break below an uptrend line which is visible on the 240 minute chart.

The 1298 level is a rather key level in today’s sessions and if that was to be taken out on a closing basis then I would look for an eventual re-test of the 1275 level which can be seen at the base of the salmon colored cloud formation on the right hand side of the chart.



EUR/JPY is approaching the top of a well defined range or channel on its daily chart which has prevailed for more than a year

The critical level is 116 and a break above that level would open up a move to the 120 level which is indicated as the target level of the weekly Ichimoku chart pattern.



Last week I drew attention to the bullish flag pattern on the chart for the exchange traded fund TAN which provides exposure (please forgive the pun) to the solar energy sector. As it turned out the flag morphed more into a pennant but yesterday’s action saw a strong gap upwards move.

The only reservation about a continuation of this move is the relatively light volume and the long upper tail to the candlestick pattern. Taking profits on half of the position would be recommended with a trailing stop on the remainder.


Global Macro Daily Form March 28, 2011


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY MARCH 28, 2011       07:51:00 GMT




Many asset managers remain unconvinced by the value of Technical Analysis (TA) and there is sometimes a rather condescending attitude taken towards its practitioners. The argument often proceeds along the lines that price and value are determined purely by fundamentals and that looking for patterns in charts is almost like looking for a predictable sequence through analyzing previous lottery draws.

The chart for EUR/USD should be sufficient evidence to refute this hostility to TA. The fundamentals for the Eurozone continue to deteriorate and yet the single currency seems destined to test the upper level of the descending trendline through the highs which has been drawn on the weekly chart.

Here are just a few of the weaknesses in the fundamentals:

1. Portugal seems certain to join Ireland and Greece as yet another territory without access to private sector funding - and its sovereign debt market is only still functioning thanks to the largesse of the ECB
2. Yields on Portuguese 10 yr government debt are approximately 8%, on Irish equivalents they are 10% and Greece is approaching 13%. In other words "haircuts" are already being priced in.
3. The talks in Brussels between EU ministers on Friday failed to make any progress on the EFSF replacement and the really key structural issues are not being addressed.
4. Angela Merkel’s CDU party lost control of Baden Wurttemburg over the weekend and her ability to hang on in political office is waning at exactly the time when Germans have their least enthusiasm for preserving the euro.

Reverting back to the chart, it is my view - which I have consistently maintained since the last ECB meeting in early March is that the FX market is expecting a 25 bps hike from the next meeting (which is scheduled for Thursday, April 7th) and unless there is a bold statement that more tightening should be expected, it would not be surprising to see EUR/USD heading back towards $1.38 and then eventually $1.35.



The S&P Midcap index really does deserve a special mention as it is one of the few major indices which is at historic highs and which appears to be heading towards the 1000 level - which is 2.5 times the low registered in the 400 zone during the 2008 crisis.

The comments here last week about the relative strength of the micro-cap and medium cap stocks have also been published in the following article entitled Micro-Cap stocks decoupling from macro risk at the Global Economic Intersect website which can be found here. Incidentally this is a very useful site and one with which I am glad to be associated.



The Shanghai Index managed to go against the trend in trading for most equity markets on Monday in Asia - as it eked out a small gain.

The index is hovering around the 3000 level but still needs to mount a convincing rally to take it back to and then beyond the 3200 level as indicated on the chart.

The diagonal line drawn across the chart also underlines the significance of this level and a failure to move above the diagonal line at the 3200 level would represent a technical failure pattern of some consequence.



The daily chart for GBP/USD shows that a key level at $1.60 has now been breached and that the next plausible target would be the base of the cloud formation at $1.5820.






TRADE OPPORTUNITIES/SETUPS FOR MONDAY MARCH 28, 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





AUDCHF    

The weekly chart for AUD/CHF clearly reveals the vulnerability of the Aussie dollar - as well as the safe haven quality of the Swiss franc - when capital markets suffer from high risk aversion as they did immediately following the Japanese earthquake and tsunami of March 11th.

What is quite remarkable is how quickly the cross rate has recovered and the willingness of asset managers to go back to the RISK ON camp and bid up the Aussie currency which is now at multi-year record levels against the US dollar. The cynic might also conclude that this latter fact highlights just how unloved the US currency is, and one should expect this condition to prevail as long as the Fed continue with their massive support operation to protect US equity prices.




AUDJPY    

One of the most notable charts of the many hundred that I look at each week is that for the daily gyrations of AUD/JPY.

From a trading perspective it would be reasonable to believe that the risk/reward characteristics at this stage are not in favor a bullish continuation of this move.




CADCHF    

Although the Australian currency provides the best insight into the attractiveness of spread trading amongst certain FX pairs, the less followed CAD/CHF rate is also instructive.

In particular in the FX/ETF correlation analysis work that I do each week there has been a notable increase in the degree to which CAD/CHF is correlating with many risk on ETF's and also negatively correlating with prices of UST's and other fixed interest instruments.

The technical characteristics of the longer term pattern on this weekly chart are in rather striking contrast with the AUD/CHF chart and suggest that from a relative performance perspective the Canadian dollar is less likely than the Aussie dollar to feature strongly as a beneficiary of improved perceptions of macro risk.

Indeed the case could be made that this rate is now in a long term correction mode with a possibility of heading towards the 2008 lows.



Global Macro analysis for March 24, 2011


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY MARCH 24, 2011       10:53:00 GMT




The Portuguese government has collapsed, Moody’s have downgraded Spanish banks and the EU leaders are meeting in Brussels Thursday and Friday to come up with soothing words to patch up the structural shortcomings in the EZ framework. Also since I began writing this commentary, Moody’s has just issued a negative statement regarding the UK economy. Their reasoning is that with slower growth (including much weaker retail sales in February than expected at -0.8%) and weaker fiscal consolidation the AAA rating of the UK could be in danger.

It promises to be an interesting 48 hours for the euro currency, but as I commented via Twitter earlier this morning the performance of the euro against the dollar highlights the fact that many funds continue to enjoy the mega generosity of the Fed, as evidence points to the fact that USD is increasingly becoming the low yield component of the FX carry relationship - with AUD being the principal high yield beneficiary. This relationship, while it persists, also provides a relatively benign RISK ON background. The real challenge will arise when the Fed (and let’s assume that at some point they will have to) signals that the tide is turning for further ZIRP and QE.

The 240 minute chart below shows that the currency is well supported from an Ichimoku perspective as long as the $1.40 level holds and my inclination would, from a short term trading perspective, to buy pullbacks with a view to seeing FX traders want to re-test the $1.4250 level.


I would also like to mention that I shall be a keynote speaker at the Traders Expo to be held in London on April 8/9 and if you click here you can register at no charge as my guest!




Recently there have been plenty of diversions to move one’s attention away from the US Treasury market and specifically yields on ten year UST’s. Arguably this market is the key barometer to global liquidity.

I shall be discussing this chart in a slot on CNBC’s European Closing Bell this afternoon (Thursday 24th) at around 16:30 GMT. My key point is that while the narrowing range persists - and in the absence of an upward breakout - the background for US equities remains well supported. In particular I would point to the relative merits of the small and micro caps in relation to the larger caps which was discussed in Monday’s commentary - and an article based upon this commentary is now available here.



The alternative barometer for measuring what might be called investor anxiety/fear, and what I call macro risk for shorthand, is to monitor certain key FX rates.

I have made the case here recently that, owing to the special circumstances now facing the Japanese currency, the preferred cross rate for the coming months should be AUD/CHF.

The weekly chart below shows the abrupt drop which was seen over the last two weeks and the suggestion is that whereas ~ 0.9250 had previously acted as support for an extended period; this level could now present a major hurdle. If the level does prove to be an obstacle this would be one key element to add into the calculation of the relative benefits of being heavily exposed to risk assets versus having a more defensive stance.



Reviewing the 240 minute chart for GBP/USD I would suggest that sterling might well retreat towards $1.6080 before finding real buying support.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MARCH 24, 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





WTI CRUDE OIL MAY 2011     

The weekly chart for WTI Crude (the May 2011 contract) covers the last three years, and possibly in accordance with the moves in silver and gold already discussed, this chart appears to be on the verge of an upward breakout.

The current level above $106 has crossed the 62% retracement level from the historic high and the 2009 low, and there are chart indications that would raise the possibility of a test of the $120 level in coming weeks.




GOLD    

Spot silver is charging ahead to new multi-year highs in European trading and I shall be watching spot gold closely as the $1445 looks likely to be broken.

The chart formation, which has been annotated, suggests a cup with handle - and it is also possible to discern some evidence supporting an inverted H&S pattern. The suggestion is that a close above $1450 would then put in play targets around $1600 - which could be achieved in coming months.



Global Macro Daily Form for March 23, 2011


Inter-market Technical Analysis using algorithmic pattern detection


WEDNESDAY MARCH 23, 2011       11:34:00 GMT




The 240 minute chart for AUD/USD is revealing a succession of slightly lower highs. The $1.0140 level is a crucial hurdle for the Aussie to overcome and I would wait to see whether a failure pattern is registered on an attempt to penetrate this level.

In the next few sessions I would be looking for another test of parity should the pattern of descending highs be confirmed in trading later today.

I would also like to mention that I shall be a keynote speaker at the Traders Expo to be held in London on April 8/9 and if you click here you can register at no charge as my guest!




EUR/USD has performed pretty much in line with expectations expressed here since early March and which I also discussed on CNBC’s European Closing Bell on the same day. I shall be a guest again tomorrow on the show and will reiterate the view that it would not be surprising to see the market sell on the news that the ECB hikes its short term rate by 25 bps at its next meeting in early April.

The daily chart for EUR/CHF reveals a clear downward sloping trend line through highs over the last several weeks and the suggestion is that any move back towards the dotted line indicated - which also coincides with the upper layer of the cloud formation - would provide a good entry opportunity on the short side.



The old joke about whether one wants to hear the good or the bad news first really doesn’t apply to the UK economy. Rather it is a question of whether one wants the bad news first or the really bad news.
Within the last 48 hours the Institute of Fiscal Studies in the UK (IFS) has documented the fact that the median income for families in the UK has declined by more than 1.5% in the last year, the ONS released data showing that the RPI is currently registering a 5.5% annualized rate and the government’s net borrowing requirement for February came in at a much higher than anticipated figure in excess of £11 bn.

While sterling rallied on the news, which cannot be good for the notion that increased exports will supply the engine of growth to replace the hundreds of thousands of public sector jobs that will be disappearing over the next few years, the FTSE is struggling to make it back above the pivotal 5800 level which also marks overhead resistance from the cloud formation. While the FTSE is more of a global index than a reflection of the domestic economy, a development that would raise concern for the bulls would be to see the index drop again below the 200 day EMA (the green line on the chart).



The Sao Paulo Bovespa index looks relatively attractive and I would anticipate a break out above the level indicated on the chart which could see the index retrace a path back towards the 70,000 level.






TRADE OPPORTUNITIES/SETUPS FOR WEDNESDAY MARCH 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





TAN  Global Solar Energy Index ETF  

TAN, an exchange traded fund which provides exposure to the solar energy sector, has a rather notable bullish flag pattern with supporting high volume on the flag pole event and the near term target level of approximately $9 is indicated by the arrow on the chart.




EWK  iShares MSCI Belgium Investable Mkt Idx  

EWK, a sector fund which tracks the MSCI Belgian equity index, shows a rather notable negative MFI divergence.




XOP  SPDR Oil and Gas Exploration  

The comment below comes from the Daily Form commentary of March 17th


XOP, the exchange traded fund for the oil and gas exploration sector, shows a turn around in the MFI values and has one of the more favorable looking formations for the long side.

Going long the fund would have returned more than 5% if purchased on the open on the 17th and sold at yesterday's high, and in view of the tiny doji star registered in yesterday's session I would look to complete the exit in today's session.



Global Macro Daily Form for March 21, 2011


Inter-market Technical Analysis using algorithmic pattern detection


MONDAY MARCH 21, 2011       12:39:00 GMT




Today’s commentary will take a different approach to the usual format in order to illustrate a conclusion regarding the relative strength of the Russell 2000 - the US micro-cap index and the $S&P 500 - which is becoming more apparent in the light of ongoing research which I am doing.

The motivation behind the charts for today arises from weekly tracking of the correlations between certain FX pairs and ETF’s and also between key FX carry trade pairs and several major global equity indices. After the tumultuous conditions across most asset classes over the last week or so there are some interesting patterns emerging which point to the fact that the micro-cap stocks are behaving far more independently of macro risk than might be expected. In fact there is evidence going back to last September that suggests that there is an asymmetry in the performance of IWM and SPY (I shall use the two ETF’s IWM and SPY as surrogates for the cash indices).

One of the features of this asymmetry is that, during recent months, the beta value of IWM increases when the overall market is performing well and decreases when the overall market is suffering from risk aversion. Based on a rolling 20 day linear regression the readings for beta (i.e. the gradient of the linear regression) were moving up towards a peak of about 1.8 during the strong upward impulse in prices during the latter part of 2010 and the first few weeks of 2011, and during the recent price retreat the beta value has declined sharply with a reading on Friday of just 1.14. This is not what one normally expects to see, as will be discussed below.

The chart below captures the relative price performance of three major US equity indices since September of 2010. The Russell 2000 has delivered a return of 25%, whereas the S&P 500 has returned 16% and the DJIA about 14%.

Significantly the recent sell-off has been more severe for the large cap indices than for the 2000 smallest stocks that are traded on US exchanges and which are the constituents of IWM.



A second technique to illustrate the recent decline in the correlation or co-movement of IWM and SPY is to track the correlation between the daily price changes of each index via a linear regression. The regression is based on daily changes in each index and a 20 day sampling is rolled across the complete data set for the last two years (500 data points)

The chart below shows that the square of the correlation coefficient (or R squared) for the most recent 20 day period which ended last Friday was 0.78 and, more typically over the extended period of two years, the R squared value has had an average reading of 0.86.

In essence what is being demonstrated statistically is that there has been a looser coupling of the daily movements in the two indices and that, somewhat surprisingly, this coincides with the recent volatility and sell-off in the overall market.



The next chart illustrates the degree of co-movement between SPY and the AUD/JPY cross rate which, as has been commented here on many occasions, can act as a very good barometer of macro risk and which in turn can act as a driver as well as a reflection of the major shifts in asset allocation.

The R squared value for the associated movements of SPY and AUD/JPY revealed on the chart is 0.45 which is fairly typical of the degree of correlation exhibited over the last two years. The actual 20 day rolling coefficient value for last Friday was 0.67 - in line with the typical performance between these two instruments - and also one of the most pronounced correlations between any FX pair and a major global equity index.

As suggested here on previous occasions, the manner in which these two asset classes move together is a surface manifestation of the inter-dependence of large allocations by global fund managers to both risk on/off currency plays and risk on/off equity (and commodity) plays.



The remaining chart for today’s analysis illustrates the much weaker co-movement between the micro-cap stocks (as represented by the daily changes in IWM over the last twenty trading sessions) and the daily changes in AUD/JPY.

The R squared value of just greater than 0.2, which is indicative of a coefficient of correlation of around 0.45, is not only half the value observed above for the SPY and AUD/JPY correlation, but also from an historical perspective is also considerably below the average value for the R squared value (over the last two years) which is approximately 0.5.

The conclusions that I am drawing from this hopefully not too statistically arcane approach to today’s commentary are as follows:

1. Since the micro-cap stocks are showing less tendency to track the larger cap indices when the overall market and risk appetite are in retreat, there is evidence of a de-coupling between the larger macro risk environment and the performance of the micro caps. This is a surprising result as it indicates that when the large caps are getting beaten down the most, the propensity of fund managers to liquidate long positions in the micro caps is not taking place.

2. The large structured trades (often implemented via complex inter-market algorithms) where ongoing adjustments in large futures trades in the S&P 500, and large movements in the SPY exchange traded fund, and the FX market are very closely inter-twined, are not being seen recently in the behavior of the micro caps.

3. There has not been evidence of any liquidity panic in the US equity market despite the recent turmoil, which is largely a by-product of the almost daily injections of several billions by the Fed via its open market operations activities. In less liquid market conditions, where funds are keen not to be exposed to liquidation difficulties, there would be a tendency to avoid the smaller cap issues as they will tend to be more difficult to sell when fund managers in general are all heading for the exits.

4. One could also make the case that what is becoming evident might be a variation on the "Long tail" thesis which has been expressed in relation to new business models for mass distribution of companies like Amazon and Netflix. The key idea is that, just as with books and DVD’s, the less popular stocks are now more accessible and less dependent for their level of demand on the activities of large nodes in the market network. This also has, as a consequence, the benefit that smaller stocks will be less exposed to the rapid re-allocation shifts executed by the larger nodes (i.e. prop trading desks and quant funds) in the market network.


Global Macro Daily Form for March 18, 2011


Inter-market Technical Analysis using algorithmic pattern detection


FRIDAY MARCH 18, 2011       12:14:00 GMT




In what has been a tumultuous week for global markets there is a case to be made that the chart for AUD/JPY captures a lot of the drama as it unfolded in the light of events in Japan and as a reliable indicator of the waxing and waning of short term macro risk.

The chart below - which I have been showing from time to time for several weeks - shows the crucial failure at the 84.40 level (which is highlighted) and then the plunge down to the 75 level, which exceeded even my ambitious downside target of 77 cited in Tuesday’s newsletter.

During the Asian trading session a coordinated round of central bank intervention, designed to weaken the Japanese yen, succeeded in pushing the rate down towards the 82 level against the USD. Largely as a consequence of this sharp move, the AUD/JPY cross rate is now back to a relatively neutral level around 81.50, and for the time being, while there is intervention I would suggest remaining on the sidelines on this cross rate.



In view of the upward movement today in the euro, I thought it would be useful to repeat my comments from the March 7th newsletter which can be found in full here .

My intuition is that the euro may attempt to reach back towards the $1.43 level as last seen in Q4, 2010 and may sit at this level up until the next meeting of the ECB in April. If M. Trichet delivers the 25 bps increase which almost everyone now expects, but softens slightly his language about vigilance, then traders might well take this as the excuse to sell off the EZ currency and take it back down towards a test of the lower boundary of the range.




Understandably most attention with respect to Asian equities this week has been focused on the Nikkei 225, but I also want to draw attention to the rather troubling chart pattern on the Mumbai Sensex index - which closed down 1.5% today and which is now drifting further away from pivotal support at the 18,000 level.

The 50 day EMA has dropped below the 200 day EMA (highlighted in yellow on the chart) and there is a fragile looking triangular formation, which, should it be broken, could bring momentum to the exploration of lower prices for this key index. India is struggling with inflation and the outlook for interest rates and fixed income assets in this territory is acting as a dampener to the appetite for equities.



Another technically weak chart in Asia is that for the Hang Seng Index in Hong Kong which has now two closes below its 200 day EMA, as well as violation of two uptrend lines.






TRADE OPPORTUNITIES/SETUPS FOR FRIDAY MARCH 18, 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





EWH  iShares MSCI Hong Kong Index  

EWH, an exchange traded fund which provides exposure to the Hong Kong market, provides a suitable vehicle on the short side for those concerned about the continuation of tightening by the PBOC and the fact that the Shanghai market is struggling to break back above the 3000 level.




KOL  Market Vectors Coal ETF  

KOL, which provides exposure to assets in equity securities of U.S. and foreign companies principally engaged in the coal industry, has a constructive volume pattern and I would favor the long side.




YCS  UltraShort Yen ProShares  

YCS represents a leveraged vehicle which rises on yen weakness. While I am confining myself in my own trading of yen crosses in the spot FX market to short term opportunistic plays, for those who believe that the intervention efforts instigated today by the BOJ to weaken its currency will prevail, this could be a worthwhile position play in coming sessions.

Be aware, of course, that this ETF should open today on a sizable gap up, and entry points would be more attractive after an initial fade.



Global Macro Daily Form for March 17, 2011


Inter-market Technical Analysis using algorithmic pattern detection


THURSDAY MARCH 17, 2011       11:59:00 GMT




During yesterday’s North American session there was a stunning illustration of the manner in which the correlations amongst key instruments - stock indices, ETF’s, FX pairs, UST’s and even the CBOE Volatility Index - suddenly became highly coherent and all moved in a decisively RISK OFF manner.

There was a news release from the EU’s Energy commissioner that the situation in Fukushima was "out of control" and, coupled with a similar announcement from another agency in Russia along similar lines, there were the same ingredients in play that produced the flash crash of May 6th last year.... this time in a more slow motion fashion which in some respects is more ominous.

The VIX was just one of the many abrupt movers and as the chart shows the daily close is now registering the kind of activity which often precedes clusters of heightened volatility and risk aversion.

Just as a note to readers the dates shown in the top right hand corner of some charts is not correct, and rest assured the data is the most current available.



When I wrote the following on AUD/JPY in Tuesday’s column I did not think that the pattern would unfold within 24 hours. But in addition to a plunge by the Australian dollar - where liquidity tends to dry up when it is most needed, the major factor was a violent move up by the yen to a new post WW2 high against the dollar around 76 in Asian trading.


The lines drawn illustrate that this FX pair, having failed at the 84.40 level to regain a foothold above the upward sloping trend line through the lows, is now at risk all of the way down to the 77 level.


On February 18th the intraday high for Aussie/yen was 84.45 and at its low during Asian trading today it touched 74.44 which is an extraordinary move for an FX pair and underlines the view that this currency pair is a barometer for risk appetite/aversion.



On the monthly chart AUD/CHF touched the base of the cloud formation in yet another powerful indicator of the extreme risk aversion which is coming to the foreground.

The usefulness of Ichimoku cloud patterns has been further illustrated by price actually finding some "support" at this level, but the underlying chart pattern raises a big question mark for those hoping for a benign macro risk environment in the longer term.



The performance from the DAX over the last two days (the chart does not include trading on Thursday March 17) lends credence to the notion that the faster they rise the faster they fall.






TRADE OPPORTUNITIES/SETUPS FOR THURSDAY MARCH 17, 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





FEZ  DJ Euro STOXX 50 ETF  

Here again are comments from Daily Form of March 8th, which can be found here the following comments were made regarding FEZ which tracks the EuroStoxx 50.


FEZ, is the exchange traded SPDR for the EURO STOXX 50 index which includes a relatively large allocation (almost 25%) to large European financial services companies including major European banks.

While the index itself does not have a huge following, and the volume in the ETF averages only about 50,000 shares per day, the price action and volume performance of the sector fund do provide insight into the general appetite for large cap European equities.

The concern with the current pattern is that the index has been stalling in a plateau formation which is now beginning to roll over with clear negative divergence in the MFI chart segment.





XLF  Financial Select Sector SPDR  

XLF is approaching a chart level where buying support should be expected.




XOP  SPDR Oil and Gas Exploration  

XOP, the exchange traded fund for the oil and gas exploration sector, shows a turn around in the MFI values and has one of the more favorable looking formations for the long side.




DBV  PowerShares DB G10 Currency Harvest  

The sector fund DBV, a proxy for the FX carry trade, shows that the high yielding currencies are very definitely out of favor in the current environment.




CAC40    

The French index CAC40 has clearly violated an uptrend line and, from a relative strength perspective, looks to be one of the least attractive amongst the major European indices.