Retail sales data in the UK for January was abysmal and there are more commentators drawing attention to the parallels between the plight of the UK's public balance sheet and those of the PIIGS nations. The big difference of course is that the UK can print more of its own currency until the cows come home. While this may be able to alleviate the ultimate anxiety about a default by the UK government the fact that the UK will increasingly have to sell its gilts to foreigners will continue to pressure sterling. As indicated on the chart the area above the current spot price as this is being written will present a significant hurdle, especially if the euro remains under pressure.

The banks and the financial sector were one of the weaker sectors yesterday with XLF (featured here last week) dropping by two percent yesterday. The intraday low remained within the range carved out in Frdiay’s session and the volume diminished on yesterday’s decline. Reviewing the KBW Banking Index (BKX) I would suggest that a possible development would be a congestion pattern within the cloud formation followed by a re-test of the $42 level. At that level the risk/reward calculus would then be supportive of an intermediate term long position in this sector.

TRADE OPPORTUNITIES/SETUPS FOR TUESDAY FEBRUARY 9, 2010
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 full details on time horizons, risk management and hedging techniques please visit http://www.tradewithform.com

BKF, one of the sector funds which track the BRIC nations, could be preparing for a short term bounce. Yesterday's inside session - seen on many charts - and the proximity of chart support, lends further credence to the notion that from a short term risk/reward perspective the short side would appear to be overdone.

RSX, an ETF which provides exposure to the Russian market, was referenced in this column on January 18th at which time I anticipated a 10-15% correction. At this point this has almost been satisfied and once again this would be a good time to retire any short positions.

When companies such as 3M (MMM) have fallen below key support levels (i.e. the 50 day EMA and cloud support) and volume patterns are indicative of distribution it is advisable to be cautious about the blue chip sector.

Another candidate for a short term bounce is PGJ which is an exchange traded fund with the evocative title - the Power Shares Golden Dragon Halter USX China.

The final bounce candidate for today's session is DBC an ETF which tracks the general commodity sector.

Clive Corcoran, publisher of http://www.tradewithform.com, is based in London and has been an active trader for many years on both sides of the Atlantic. He is a trading software developer and consultant and focuses on risk reduction and market neutral strategies for portfolio managers. His book Long/Short Market Dynamics: Trading Strategies for Today's Markets was published by Wiley in early 2007 and his articles have appeared in Traders' Magazine and Active Trader. He is an acknowledged communicator on the capital markets and has been a featured speaker at trading expos and workshops.

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