I commented earlier in the week about the "gravestone doji" candlestick formation seen on the S&P 500 cash index. Not to be outdone, a similar pattern was registered on the Nasdaq 100 index yesterday.

One of the news items of the day (so far) that caught my attention was this which appeared in the Lex column of the Financial Times.

Since the day Ben Bernanke was appointed the 14th chairman of the Federal Reserve, the US economy has not grown by a single dollar in real terms. The average price of a house has fallen by almost a third. Stocks are down 20 per cent, having halved this year from their peak. Unemployment is approaching a 10th of all Americans seeking work. The target federal funds rate is virtually zero and, in the short term at least, deflation is looming. Hardly an inspiring record for anyone heading an institution whose official objectives are “maximum employment, stable prices and moderate long-term interest rates”.

Another reality about central bankers is that it is impossible to assess how well they have performed their role until many years afterwards. Even then, the counterfactuals can never be known. Former chairman Alan Greenspan reached god-like status during the dot.com boom. Now he is accused of helping to inflate the credit and asset price bubbles that led to the current global financial crisis.

As the article implies, central bankers, enjoying their status as the high priests of a financial technocracy, are like the system they watch over: too big to fail.



The sell signal on the GBP/USD to which I alluded last week has played out well, and I suspect that sterling is coming down to a level were a bounce is to be expected.

One of the more compelling cross rate trades at the moment is short sterling and long euros, but this appears to be slightly overdone at present and a relief rally would coincide with a likely bounce for sterling against the dollar.

Longer term, it appears that traders are coming around to the view that the euro could be headed back towards parity with the UK currency.



I have expressed my view that the US dollar index could be headed higher in coming weeks.

The chart below highlights a remarkable descending wedge pattern in which the USD appears to be ready to make a decisive move against the Swiss Franc.

The positive divergences on the chart favor a sharp move upwards. Looking back to the top of the wedge, it coincides almost exactly with the beginning of the March recovery and if the greenback is header higher then it suggests that the risk aversion trades may be ready to come back on again.



XME, an ETF which tracks the metals and mining sector, is revealing some negative divergences.



PGF is a sector fund which tracks the price and yield performance of the Wachovia Hybrid & Preferred Securities Financial Index, and the heavy volume selloff late last week appears to be setting the stage for a pullback pattern with subsequent renewed weakness.



The chart for Bank of America (BAC), shows the kind of rolling top pattern which often precedes a correction.



Network Appliances (NTAP) looks vulnerable to further selling.



Clive Corcoran is the publisher of TradeWithForm.com, which provides daily analysis and commentary on the US stock market.