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.