23/12/2007

Futures analysis

After posting a double hammer pattern, on thursday and friday the futures formed a double inverted hammer pattern, which eventually generated a small pullback towards declining 10-day moving average (daily chart). Friday was the derivatives expiration day, so from now on, we will be looking at march series. Last week brought us some important news, that was considered as stronger catalyst for the global markets. Firstly, consumer spending in the United States rose more than expected, decreasing odds for recession. Secondly, European Central Bank injected 500 bln USD into the interbank market, which fueled short term rallies in the global markets. My stance remains unchanged. For the first time in history, central banks try to save the economies from the results of credit crunch by increasing money supply, thus generating inflationary pressures. These are short term activities, which are to cool market psychology, preventing rapid declines or even crashes of the stock markets. Fundamental factors are still supporting longer term downtrends.

Looking at the intraday chart, we can see, that WIG20 futures posted a 4-wave pullback, which ended up finding resistance at 23,6% Fibonacci retracement of the whole mid term decline, corresponding with 38,2% level of the last sharp, downside move. We are currently entering holiday period, so I do not expect much of volatility in the global markets. Breaking above 3500 will mean, that current pullback is going to be extended at least to 50% Fibonacci retracement, which appears to be the nearest upside target. 3510 is a former support level and it lies just before this retracement, creating a potential resistance area. On the intraday chart I also plotted a downtrend line, which is also acting as a resistance in the short term, so if current pullback is meant to be extended, the price must break through these levels on heavy volume, in order to confirm a reversal.