Sand Spring Advisors LLC

Another "Pattern Match" to be Concerned About

November 16, 2003

by, Barclay T. Leib

Please excuse the quality of the two charts below. The bottom one is of 1990 AUD/JPY on a weekly basis. I saved a hard copy of it as it occured, and it does not exist on too many data services today since it transpired some 13 years ago. It had to be scanned from my hard copy.

I saved this chart because while at Goldman Sachs, I spotted AUD/JPY at the time to be a classic triple top with huge downside implications. At my behest, my colleagues and I (trading as a team) went short approximately 20 million aussie near 120, and rode it most of the way down, also buying a tremendous amount of out-of-the-money put option volatility before the real nastiness began.

I present this triple top because I think that it has an uncanny resemblance to what has recently transpired on the 60-minute bar chart of the S&P 500 -- right down to the last faux spike higher. No one expects an equity market crash right now. Most expect a continuation of a "standard" steady recovery into 2004. Volatility is low and sentiment complacent.

Here at Sand Spring, however, we are already short the S&P and watching this potential "pattern match" carefully, and anticipating how it might fit in with the possible daily-bar "pattern match" shown back on October 28th that revolves around a previous topping pattern in USD/CAD. Both pattern matches certainly imply that being short now makes sense -- at least to our eye.

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Sand Spring Advisors provides information and analysis from sources and using methods it believes reliable, but cannot accept responsibility for any trading losses that may be incurred as a result of our analysis. The opinions expressed are not intended as specific investment advice, and simply represent our personal views offered here under our right of free speech. Sand Spring Advisors is a NFA registered CTA/CPO, but is not a Registered Investment Advisor. We do not directly trade any client funds. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, and should always trade at a position size level well within their financial condition. Principals of Sand Spring Advisors may carry positions in securities or futures discussed, but as a matter of policy will always so disclose this if it is the case, and we will specifically not trade in any described security or futures for a period 5 business days prior to or subsequent to a commentary being released on a given security or futures.

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