12/10/2008

Futures analysis

The futures have finally reached a 50% decline, equaling the bear market from early 2000s after dotcom bubble. Price retested the peak of year 2001 on Friday, where another massive selloff took place, driving the index almost 12% to the downside. The volume has reached its peak also, which shows us similar situation, when January lows were formed. As you can see, nobody believes in any rescue plans or lower interest rates anymore. Credit market remains completely frozen, because banks and other financial institutions do not trust each other, which is caused by high risk of insolvencies or even further bancrupcies. As for intermarket factors, 30-, 10- and 5-year U.S. T-Notes have posted double tops, indicating that yields will not pay off anymore. Commodities are also declining sharply, meaning that the markets do not fear inflation. The last thing to move upwards right now are the stock indices. It is hard to judge now, how strong our current support will be (1980 area), but I would rather expect some sharp bull traps first, than a clean bounce, if we are to see another corrective wave here.

As for 5-minute timeframe, we do not have any solid short term levels to stop potential downside action. There is this only one swing low from Friday, which will probably be retested on Monday. One single level is not much, considering current market volatility. But if we look at the american stock market Friday close, we would see that prices posted rounded bottom patterns with sharp rallies shortly afterwards. Main indices managed to retest Thursday's closes, which resulted in huge downside spikes, shown in the daily timeframe (after closing bell). This may not indicate buying just yet, rather short covering, but technicals are technicals and if price posts sharp rallies near the end of the day, it might signal, that short term trend is changing. From now on, the most important level will be 2105, which marks recent downside gap. Gap resistances are the most wide and solid areas to overcome for markets, so any action above it will suggest, that price is capable of forming at least short term bottom, which could then evolve to a reversal pattern later. Tommorrow banks in Japan, Canada and the United States will be closed, because of holidays, which is going to influence foreign exchange markets, causing low liquidity and volatility. Let's see if it works for the stock traders.

04/10/2008

Futures analysis

The market has broken through major long term areas of 2450-500 and we are back retesting 2005's October low, which lies near 2215. If you look at the daily chart, you will see, that the volume has been significantly higher recently, which could indicate a potential bottom forming. That would be reasonable, because retest of 2215 posted actually the same pattern as in January, when first pullback occurred. The pattern consists of two candles, where the latter one exceeds previous day's low and ends up indicating a rally. It is a typical price exhaustion formation, when the last of the bulls give up their positions, by closing stop loss orders. Massive selling causes exhaustion, because it leads to a situation where ther is no one left to sell and market reverses. Volatility Index has reached previous historical levels of year 2000, when the dotcom bear market had started. Also, Dollar yield curve has maintained its normal shape, which is good for the currency and economy in the longer term. Short term interest rates are expected to be lower again, which suggests, that the market does not fear higher inflation anymore. Every single one of these mentioned factors is a good reason to believe, that we might have another bottom in the global stock markets. One reason, that would support opposite situation is that WIG20 futures fell 'only' 36%, in comparison to 50% after the dotcom bubble.

As for intraday timeframe, the futures posted a sharp bottom after two-day decline. This reaction was after the Non farm payrolls data, which caused euphorical buying of the Dollar (though the stock market slumped afterwards). I would expect even another downside gap on Monday, but the question is: how far can the futures open to the downside after such unexpected decline in America? The first potential support area appears to be 2330, which is Friday's intraday swing low. If the price breaks through this level, then the nearest target would lie around 2300, which is the latest low after downside window (30th of September). Upcoming week will bring us usual data on crude inventories and initial claims, which cause minor volatility and act as catalysts only for intraday moves. Unless some unexpected news come out, we can focus on pure technical factors. My stance for Monday is bearish. Firstly, because WIG20 futures are in clear downtrend and secondly, because american stock market has not changed its intraday trend to the upside (greater odds for continuation than reversal).

21/09/2008

Futures analysis

We have broken the May 2006 low, which was retested back in July this year, but the futures managed to find another significant support area to bounce from, defined by levels reached in 2005 (marked as 2220 zone). Recent action in daily timeframe was a typical price exhaustion, just as we saw back in January. Thursday's open exceeded previous day's low by almost 30 points, which marked capitulation of the last bulls here and caused prices to rally. Volume reached its highest value since April and that would be a textbook sign of another bottom forming. Moreover, price levels and recent news came along with contract expiration. Rallies are usually caused by traders, that switch contract series to another. Speaking of the news, we had more rescuing by the Fed along with ban on short selling 800 stocks. This whole bank rescue plan was the main cause of current rallies in global stock markets. As for technicals only, the market has become range-bound again, this time between 2220 and 2450 (both bands already tested), so upcoming mid term price action is probably going to be sideways, which does not indicate a bottom just yet. We must either wait for a retest of 2220, or a sustained move above 2450, to see whether this market has already ended its decline or not.

Friday's gap exceeded Thursday's high by 50 points, as shown on intraday chart. The futures have entered heavy intraday resistance area between 2425 and 2445. This is a window area from 15th of September, which is yet to be filled, if we want to think of any bottoms in this market. The nearest support level is of course upper band of Friday's window near 2360. This will be our emergency level, that protects from retesting Thursday's low. The market has gained a lot of momentum, so there are no technical factors, that would already indicate any weakness in current trend. Upcoming week will bring us less info, than usually. News from America will cover data on durable goods orders housing market and crude inventories, but we will also listen to Chairman Bernanke, as he will testify before the Congress (could cause volatility in currencies, which can result in overnight gaps in stock markets). According to Cleveland Fed, there have been some changes in short term interest rates. Expectations are higher for lowering Fed Funds rate by 25 basis points at the end of October and even by 75 points in December (sic!). This is going to be bearish for Dollar at least in the short term, but these interest rate fluctuations did not influence overall yield curve (rather it was a result of the rescue plan). We might see moving out of the money market and into the stock market in the nearest future.

15/09/2008

Futures analysis

We have broken 2405-50 May 2006 area, which was caused by negative sentiment spurred by Lehman Brothers' bankruptcy (the whole yesterday neutrality concept went out of the window). The futures sold off today with heavy volume and set a new downside target, which is at a high of August 2005 (later confirmed as support in November that year). Merrill has been bought by Bank Of America and next in line is AIG, that seeks capital. I do not know if anyone else is still waiting to be bailed out, but taking over usually serves as an early signal of bottoming. This would be a rather mild bear market this time in comparison for example to 2000 Internet bubble, which drove the markets 50% to the downside. Here, we have declined 30%, but currencies, commodities and american money market already show signs of a sound economy (normal yield curve for Dollar). It is a matter of time, when the stock market should start to reverse its main trend, as every other factors, that I mentioned before are giving earlier signals, especially when it comes to major turning points.

It is hard to point out any potential support and resistance levels, judging by the intraday chart, except for today's swing low, which is at 2340 and broken July low, which is going to act as resistance from now on. Any other rapid selloffs, that might occur this week would rather signal, that exhaustion level is near. I will be more concerned, when the futures start to decline at a slower pace and with little pullbacks along the way. That would definitely extend the main trend even below the next daily target. As for macroeconomical situation, tomorrow is the CPI day, which means that we are going to have inflation data from UK, Euroland and the States (the most important). The Fed is even expected to lower the benchmark rate by 25 basis points, which may act later as a longer term factor. Sentiment from the States is of course very bearish and the indexes did not show any sign of reversing intraday trends, so the odds are in favor of continuation. Any further gaps to the downside will also signal exhaustion.

13/09/2008

Futures analysis

I have been busy lately and I could not update my blog regularly. As it appears, there has been little of unexpected activity in WIG20 futures. In one of my last posts I stated, that we are probably going to see a retest of May 2006 low, which is about to happen anytime now. The market was not strong enough to break above January low level and found resistance at declining short term moving averages. Now, the most awaited thing is the actual retest, especially in the wake of current market situation. Yield curve for Dollar is normal, which means, that currencies and money markets have already discounted a slowdown in american economy, which does not have to go into recession anymore (it will not change anything). The last thing we are waiting for are stock markets. That is why retesting 2405-50 is so important, because it will serve as a major timing factor. Rules are very simple. Bouncing off May 2006 low will indicate a potential double bottom pattern forming in daily timeframe. And if that occurs, then it will mean, that shares have finally put an end to the subprime crisis. Then we would probably see some sidetrend, because yields in money market need time to inverse. But if price falls below 2405, then it will take more time for WIG20 to recover and the nearest downside target would appear to be around 2230 zone.

Intraday chart shows, that the futures have become range-bound again and will trend sideways between 2480-95 resistance and 2440, which is the main intraday pivotal area now. Sentiment from the States is negative, judging by the daily timeframe. The stock market has retested the most recent swing lows, bounced off, but did not actually change the main trend yet. Intraday sentiment after Friday's close would be rather neutral, because the makret was able to form in a pattern of consecutive higher lows, but ended up finding resistance at previous day's close. Such price action does not forecast much, except that there is some heavy selling coming in just above key intraday levels. Combining situations in America and here in WIG20 futures, Monday is probably going to be just as neutral, as it has been lately, unless we hear unexpected news from Lehman again for example. Upcoming week is going to bring us some important news covering industrial production, CPI, housing market data and of course FOMC policy statement. All of these combined would serve as a perfect catalyst, to determine further movement in the stock market. As for interest rates, options on CBOE have discounted over 80% probability, that the Fed will leave benchmark at 2,00%.

21/08/2008

Futures analysis

Inflation hit the markets again and we had a breakdown after a one-week consolidation in WIG20 futures. Although the Dollar has reversed trend along with Crude Oil, we still have to wait through all these negative macroeconomical reports, that are actually delayed results of what happened beforehand. 2600 support area did not hold, so we are back in the main downtrend. Retesting 2450 is unavoidable, as there are no significant price swing lows or highs along the way in daily timeframe. Commodities are currently recovering after hitting important support levels, so there we have some writedown-recession sentiment fueling these markets. It is a typical situation, when technicals discount things before they actually happen. After reaching support in Crude and resistance in Dollar, a couple days later Poland agrees to sign a missile-shield agreement with USA and suddenly we are seeing market's concern on Georgia's situation. So far, technicals say, that WIG20 futures are going to retest 2450 area first, before the price would bounce back to its recent daily swing high. Sentiment for the Dollar did not change - 2% Fed Funds throughout September and October (highest implied probability). The only thing, that would influence people betting for recession is increasing interest for Japanese Yen (I will try to post its forward curve soon).

Intraday chart shows, that the futures have managed to rebound from 2537-42 area, after making a 1:1 measured move from 2780 highs. Now, the price is forming a rounded bottom pattern accompanied with higher volume and stalled (but rebounding) open interest. The States formed an uptrend today, which did not change its direction, so the odds for a continuation are grater than for reversal. As you can see, the price of WIG20 future has already discounted some positive sentiment, so we are probably about to enter 2575-600 area. This is the most important level now, as it has a 'pivotal' status, meaning that if the price goes either way from there, it will indicate which way is the actual short term trend going. The rules are simple now. Watch the price action inside 2575-600 area and look for particular patterns, in order to spot weakness or strength in this market. If it touches the upper band of 2600 and forms a flag just below, that would indicate, that there is potential to go further upwards. One-time retests with sharp or double tops will not forecast anything good for the bulls. My stance for tomorrow is neutral/bullish. Neutral, because we are range-bound again (between 2537-42 and 2575-600) and bullish is due to slight positive sentiment coming from the U.S.

17/08/2008

Futures analysis

The market is struggling to get above the January low near 2680. Also, price is currently between shorter term moving averages, which indicates indecision. On the other hand, two last daily candles have already found resistance at declining 10-day moving averages, which is not a good sign for the bulls. The only thing, that would work for the upside is obviously rising demand for higher yielding assets. The Dollar has changed mid term trend on rate hike speculation. According to Cleveland Fed, options indicate over 70% probability, that the Fed funds will remain at 2% (still supportive for USD). In current situation, this positive sentiment for currency has to overlap any negative catalysts related to recession or inflationary factors, if the stock markets are to move higher. As for technicals, there is little support left, except for 2600 level and January low acts as the main resistance, so it is fairly simple now. A sustained move above 2680 will increase the odds for trend change and falling below 2600 means retest of 2450.

On the intraday chart, you can see, that actual support is the area between 2575 and 2600 (little more insurance). The futures have become range-bound, just as I said in my previous analysis. January low lies in upper band of current price range (2665-90 area), so you can see how close we are to resolving this situation either way. Upcoming week will bring us monthly PPI data from the U.S. (Tuesday), along with crude oil inventories (Wednesday) and speech of Fed Chairman Ben Bernanke (Friday), which are the most significant of all potential sentiment catalysts. As for Monday only, my stance is rather bullish/neutral, because of positive close of american stock market, which ended up posting an uptrend late in the day. According to my rules, when a trend is posted before the close, it is likely to continue the next day, so WIG20 futures usually discount such action throughout trading session in advance (unless something changes overnight).

12/08/2008

Futures analysis

The market managed to stay above rising short term moving averages, indicating that current action might still be a pullback within a pullback. Today daily candle's close exceeded previous two days' highs, leaving some room for potential upside action. Though we are below January lows (2680), which is more significant longer term level, giving price solid resistance. Earnings season reports from the States cause overnight sentiment shifts in global markets. This explains why stock markets have been in decline mode lately in spite of falling Oil prices. As for WIG20 futures, getting above January low level will be more reassuring in confirming short term trend change to the upside. Otherwise, if price retests recent highs just below 2800 area and fails to exceed them, then it will mean, that we are back in the main downtrend. The futures have recently entered a contraction area between moving averages, so it is rather an indecision period than early signs of swing low confirmation.

Wednesday window level (plotted on intraday chart) has become a very significant intraday support/resistance area, which is constantly tested by the market. The swing low near 2600 is our emergency support, meaning that breaking below this zone confirms bear market continuation. This is swing low of the main (daily) correction. In the intraday timeframe you can see, that recent upside action, that took place after retesting 2600 could be also a corrective wave, as we have seen a double top pattern earlier (upper area of the chart). If we are to retest this double top near 2780-85, then the futures have to get above Wednesday window level and confirm it as a support again (current swing high). Otherwise, the price will remain range-bound between 2600 and 2660-90 (indecision). Tomorrow comes out significant news covering U.S. retail sales, which often moves the Dollar and thus, fuels intraday sentiment in stocks. The States closed today in a down trend, posting no signs of reversal late in the day, so my stance for tomorrow is neutral/bearish (given lower expectations for retail sales too).

10/08/2008

Futures analysis

The market says "no" and we have to wait a little longer, in order to see eventual extension beyond 2800 level. In fact it has not been retested yet, which might indicate, that the futures are not strong enough yet to go that far to the upside. So far, we have seen a 3-day decline caused mostly by negative sentiment related to earnings report season. The longer term pullback ended up finding resistance area between 50- and 100-day moving averages, but did not violate itself enough, to say that we have a continuation of the whole bear market. Wednesday's window (shown on intraday chart) did not hold as a support and was finally broken on Thursday. Though, the futures ended up posting a reversal bar (doji) exactly at rising 20-day moving average, so it might be a pullback within a pullback, which may lead to another test of current month's highs. Upcoming week will bring us some data from the U.S., which will cover housing market, retail sales and monthly CPI. This is going to influence the Dollar, which is already strengthening. Fed Funds rate is so far expected to remain at 2% throughout October, which is rather bullish for american currency. More bull market in Dollar means bull market with little delay in stock markets.

As you can see on the intraday chart, the futures only managed to retest a high of 31st of July, but were not strong enough to post a sustained move above it. This is a classic souble top pattern, which started this recent 3-day sharp decline. Wednesday's window was tested twice until price managed to break through. It has become a resistance level and the futures have to get above it again, if we are to see further upside action. Market is range-bound again, this time between 2600-05 and 2665 area - the most significant intraday support and resistance for upcoming week. Remember, that lower range band corresponds with rising 20-day moving average, so any emergency support level remains only near 2570, if current is broken. Breaking below 2570 means going down to 2450 again. Watch intermarket action carefully now, as we have newly established patterns in daily timeframe. Crude Oil showed weakness, which can lead it back to 100$/barrel and EUR/USD posted a double top, that was the main cause for establishing a new trend supporting Dollar. I think we are seeing the last of subprime writedowns. Now we have to concentrate on economic slowdown, which is coming to Europe (Spain so far).

05/08/2008

Futures analysis

The pullback managed to stay above two important technical factors - rising 10-day moving average and Wednesday's window (30th of July). It appears, that sentiment on the Dollar has changed in the longer term (probably until December), which is currently the main catalyst fueling rallies in global stock markets. Crude Oil did not hold its crucial support near 122$/barrel, so it might provide another clue, that the markets are probably going to forget about recession in America and focus on upcoming interest rate movement. Today, the FOMC announced, that Fed Funds rate will remain at 2% and it is expected to stay at this level even through October, which is going to be rather supportive for the Dollar. As for WIG20 futures, the key levels of resistance are yet to be tested. The most important short term level, that might be tested in the next few days is of course declining 100-day moving average, which is curently in alignment with swing lows from April. I thought the whole correction, that took place in daily timeframe was about to exhaust itself just after posting upside gap on Wednesday last week. It was a good place to form a bull trap, but eventually, as you can see, it turned out to be a continuation pattern. The most important factor from now on is sentiment on U.S. Dollar, because it will determine, whether the stock markets are capable of changing trends until the end of this year or not.

5-minute timeframe shows that, the price extended its range to 2690-2770, confirming Wednesday's window level as a support. Now that the futures closed just under weekly highs, it will be obvious to expect a sustained breakout, if we are to continue current daily retracement. Given current sentiment, that came from America after the closing bell, WIG20 futures are likely to post an upside gap in the morning, which could exhaust any potential upside movement for the rest of the day (especially if gap reaches our daily target near 2800 area). Tomorrow will bring us crude inventories data, that always acts as a strong catalyst. Expectations are for increase, which naturally works against the Oil price, giving stock markets some room on the upside. My stance for tomorrow is bullish, with target at 2800 resistance zone. Watch the market, when it enters this area, because if it eventually posts a sustained move above it (in next couple of weeks), then we could start thinking about potential bottoming out and ending of the bear market at least until the end of this year. The only factor to support this stance is rate-hike sentiment on the Dollar.

03/08/2008

Futures analysis

The futures posted an inside bar doji on Friday, which in conjunction with previous patterns indicates, that our pullback encountered heavy resistance and is about to reverse. If price forms an inside bar, that usually means trend reversal, so the odds of the futures getting back to major downtrend have significantly increased. Moreover, we had a volume climax on Thursday (highest since April), after U.S. GDP data, which happened to come along with declining open interest (position closing). I fear, that the most recent price action, that took place above January low level (2680) is going to evolve into a bull trap. Although the market found resistance between two declining long term moving averages, it did not fill Wednesday's upside window from the last week, so technically there is still some room to find support above 2680 and extend the pullback a little bit. As for our short and mid term catalysts, the U.S. labor market data along with GDP advance appeared to be worse than expected, which again brought concerns on contracting economy and inflation. Judging recent price action in the futures and adding the news, I can say, that it is a good time for returning to bear market.

If you look at the intraday chart, you will see that, Thursday's resistance has extended to a 10-point area between 2750 and 2760. Nonfarm payrolls did not cause usual volatility this time and the market moved sideways for pretty much the whole session (one of potential scenarios from Thursday's analysis). Current price range between 2710 and 2750-60 will now act as pivotal area for the upcoming week. Thus, now we should start looking for potential breakouts either way, which will confirm future movement. Breaking below the range will mean retesting Wednesday's window, that is our emergency support. On the other hand, if we are yet to see any upside action, then the market has to make a sustained move above 2750-60 area and possibly confirm it as a support immediately. We have one more day to see about that, because on Tuesday, the Fed will decide what to do with interest rates. The highest odds are for leaving Fed Funds at current level of 2%, which means that there are still inflationary concerns and no one wants to hurt already slowing economy further. Judging by the most recent price action in the futures, we can assume, that interest rate sentiment has been already discounted by the markets. Meaning, that sharp Thursday top, along with range contraction on Friday have already shown whole anticipation. American indexes also moved sideways before weekend, so my stance for Monday is neutral, as the markets will probably wait on the next significant catalyst.

31/07/2008

Futures analysis

The futures managed to get above January low level of 2680, which happened on rather heavy volume. Wednesday appeared to be very bullish and kept positive sentiment, caused by short term catalyst - early ADP nonfarm payrolls publication. Now that today's news showed, that american economy missed its growth forecast, the volume became even heavier and today's session closed posting a hanging man pattern. This recent price action combined with earlier euphorical buying might indicate, that we are in the middle of a bull trap, which could eventually put an end to current corrective wave. Last time I stated, that if the futures break above January low, then the next upside target will be 2800, now corresponding with declining 100-day moving average. Tomorrow comes out the Labor Department's nonfarm payrolls news, so volatility will probably strike again. Tomorrow's post-news sentiment has to confirm today's selloff, if the market is to terminate the pullback right away. Otherwise, better-than-expected employment data will keep the price in current resistance area, up to 2800.

After continuation pattern on Wednesday (gap and the whole intraday trend), today's price action went mostly sideways, which indicated, that the futures were near an exhaustion level. Late day news on economic growth in America caused a sharp selloff, backed by huge volume. The market managed to recover a bit just minutes before closing, but as you can see on the intraday chart, it was a corrective wave, that found resistance at 2750 (earlier a support level and Wednesday's last hour high before closing). Now, the futures have become range-bound between 2710 and 2750, which will be our pivotal area for the next session, in case that futures change the trend to downside definitely. Staying above the upper level might still revive chances for 2800 retest. On the other hand, if the market breaks down through 2710, the nearest potential support is Wednesday's window of 2665-85. If we take the selloff leg, then add it to last hour's pullback high, then price target appears just at the window level, so it would be a classic 1:1 measured move. The States remained in a downtrend and did not change sentiment before closing, so my stance for tomorrow is bearish. Though, as it has been proven by recent examples, the market could already discount everything overnight and post another downside gap. If a downside gap occurs in the morning, then any bullish price action will be driven by positive expectations on nonfarm payrolls.

29/07/2008

Futures analysis

The pullback has slowed down, but managed to stay relatively intact after some overnight sentiment catalysts, that stopped out just minor traders. As you can see on the daily chart, the futures are nearing declining 50-day moving average, which is now corresponding with January low of 2680, creating much stronger potential resistance. Given current market sentiment, this level could be tested tomorrow, because of as little as 20-point gap, that separates the closing price from this area. Tomorrow starts the news streak, which will setup sentiment for the next week. First comes ADP nonfarm employment change, which is slightly less considered sister of actual nonfarm payroll announcement. Then, late in the day, we will learn about Crude Oil inventories, that will influence intermarket action (having in mind oversold Oil futures). Unfortunately for Warsaw Stock Exchange, it is coming out after the closing bell, so any drastic change in sentiment would probably result in an overnight gap next day.

Intraday chart shows, that the futures are struggling to make new highs, although price does not move sideways much. Recent movement has been volatile, which is caused by betting before important news (this explains rapidly changing sentiment and gaps). Today's session was bearish overnight again (just as Monday), turned to strong bullish just after the open but barely made a new high before closing. January low is just 20 points away and completes a resistance area along with the most recent level of 2660. Given today's action in the U.S., my stance for tomorrow is naturally bullish, at least for morning part of the session, before announcements come out. The States posted a strong uptrend, that did not show a reversal pattern before the close, so I would even expect an upside gap on the open here. If the gap exceeds 2680, then look of the price to find support in this area at least to 2660. If it does not prove as a significant level, then the market could have some trouble breaking above it in the future. Remember, that the best confirmations occur when markets post sustained moves (pure volume-backed price action; no windows). If price manages to stay above 2680, then the pullback could extend to even 2800 in the intermediate term.

27/07/2008

Futures analysis

Dark cloud cover pattern, that formed on Thursday has been rejected by the futures, which indicates that current pullback will continue at least to reach 2680 level (January low on daily chart). Friday's session also closed Wednesday's upside gap. The market managed to gain some momentum again, so we are probably going to see the retest in the beginning of the next week. Notice, that long term 100-day moving average is still far away from the price, so I would not be surprised, if we had same consolidation pattern as after establishing January low (until it retests the MA). Only difference would be in price range, which going to be significantly tighter, than previously (2450-2680). There will be no crucial macroeconomical announcement from America until Thursday (GDP advance). Friday will bring ever-volatility-causing non-farm payrolls data, so unless you are a position trader playing higher timeframes, I would not advice to get involved in the market before the news, because it would be pure gambling.

As you can see on the intraday chart, the futures discounted all bearish sentiment overnight (rules from America) and opened near lower band of Wednesday's window. It was actually the last of selling we had seen that day. Three downside spikes (bear traps), that you can see near the gap level sucked in some remaining sidelined money and prepared the market for upside action. My only concern for not being bullish on Monday is that the market moved parabolically, which often is a good indicator, that it is time to sell. Moreover, Friday was an outside range day, which also is commonly considered as a reversal pattern. On the other hand, the futures keep making new highs, showing some strength and we did not actually see a top formation yet, so only danger here, that would instantly reverse the market is an event of low probability (surprising the crowd). The States moved sideways on Friday, but managed to establish a solid intraday support and bouced off of it. Thus my stance for Monday is bullish, unless the market opens above previous day's highs (above 2650), which would destroy the whole picture.

24/07/2008

Futures analysis

The futures slowed down today, one day after posting continuation gap. Two last candles align in a pattern, which is called 'dark cloud cover' and is commonly known as a stall/reversal formation, suggesting a possibility to close overnight window from Wednesday. Such occurrence should not surprise anyone. The futures managed to post a five-day rally after downside exhaustion, and now there is room to resolve current situation without sharp, emotional and volatile moves. Yesterday I feared, that housing data from the States might act as a short term bearish catalyst, but I did not expect it to break current price formation. This brings up important points to note: Friday will be crucial, because the market is going to penetrate Wednesday's gap level A sustained move below the gap area will indicate, that retest of 2680 will be much delayed in time and if the market becomes weaker after that, then we will see retest of 2450 first Tomorrow will only bring us data covering new home sales in the U.S., but the news comes out at 16:00 CET, so it will be near the end of trading session (sentiment for Monday).

Intraday chart shows, that the futures broke rising trendline, that I plotted yesterday. We are out of the main short term trend, so from now on we have to pay attention to support areas, which are certainly going to be retested. Outcome of these retests will tell us, if current pullback in daily timeframe is going to extend or reverse early. Firstly, the gap level between 2580 and 2600 will definitely play a crucial role tomorrow, as it has already been touched by the market minutes before the close. Below this area, there could be a potential support near 2550, which is represented by intraday swing lows (emergency short term support). If the daily pullback is ought to continue, I would like to see the market not testing 2580 from the downside with confirmation. This is because such occurrence would lead to a trend change, meaning early termination of our current correction. In the wake of american stock market's close, it will be really hard task for the futures to remain above the whole window level, unless something happens overnight. The States posted a decline backed by momentum, which did not change even late in the day. According to my rules, if there is a trend before the closing bell, it is likely to continue on the next day and in this particular case (given the magnitude of downtrend), there is possibility of a downside gap in the morning. Resistance levels for tomorrow are: 2620 and 2645, gap level is the main support and emergency area lies near 2550.

23/07/2008

Futures analysis

The futures managed to exceed 2600 resistance area, by posting an upside window. The next resistance area is of course January low of 2680 (daily) and there are only 50 points left along the way. Current rally has been very sharp so far, as you can see on the daily chart, which shows how exhausted the market had become earlier, after declining actually from 3000 level. Huge downside momentum caused a V bottom pattern to form and squeezed all the shorts, that entered too late (on bear trap below 2450). I do not know, for how long the markets are going to forget about America's recession and thus, how much strength can current pullbacks gain. Nevertheless, WIG20 futures will remain inside 2450-2680 range in the nearest future. A sustained move above 2680 could lead to retesting even 2800, but that may be an optimistic forecast on my part, considering overall weakness. Tomorrow and Friday will include data on american housing market, which is actually the most relevant in terms of influence on market sentiment.

Tuesday posted a sideway correction pattern, which I expected in my previous analysis. The market managed to preserve its momentum and that resulted with an upside window, today's morning. As about 50% of the move was doscounted overnight, WIG20 futures moved only 30 points to the upside and found daily high between 2600 and 2660, which are now key levels of support and resistance respectively. Given today's price action in the U.S., the market could again act a little neutral on Thursday. The States showed a volatile session, closed positively, but did not form a clear trend either way, which makes it harder to forecast. Though we are still in unbreached uptrend, so the odds are in the bulls' favor. If the futures are to post any sustained moves yet, the best way would be to gain strength by pulling back to this rising trendline, that I plotted on intraday chart. Such price action would discount States' indecision, but also give room to gain strength required to rally further.

21/07/2008

Futures analysis

The pullback continues and it has managed to last three days, which was enough to retrace back almost to 2600 - the last swing high in this downtrend. My stance for today was neutral/bullish, because I was not sure about american stock market's action, due to its yesterday's closing price near two-day resistance. As you can see, throughout practically whole trading session today, the buyers went aggressive and caused the market to post a huge momentum rally, which lasted all the way to the close. You can also see, how market's sentiment can confuse many traders, by rejecting intermarket technical principles. For the whole day, traders were betting along with rebounding Crude Oil, which caused Exxon and other industrial companies to rally before opening bell in the States. As, you can see, the fact that Exxon produces only half of its then-sold petroleum does not concern many players in the market, which sometimes causes such correlated movement between stocks and Crude Oil. Nevertheless, the Oil finally rebounded and it seems, that another session would be an intraday turning point.

Intraday chart shows, that even if the market opens above previous day's highs, it can post a huge 2-percent rally and retest key levels from the last week. The futures managed to get above important swing highs, practically with no looking back. Now let's see, how current situation can evolve. The States posted a decline today, which was a result of arbitrage profit taking from European session. It was a single day today, when every other stock market preceeded America (not the opposite as usual). Trends in S&P and Dow Jones are naturally down, but both of these indices managed to post an intraday double bottom pattern, which could change things here (but not necessarily). My bet for tomorrow is a correction, either sideway flag pattern (if the futures preserve momentum), or more sharp pullback to 2555 or even 2535. These are primary and secondary support areas respectively. Oil is currently rebounding after falling 11%, so we have to wait on the sidelines, in order to see, how current situation is going to develop. The only market, that did not forget inflation are american bonds, which have recently turned bearish again. Oil is the key now, so watch it carefully, because then you will be able to gauge for how long the stock market is going disregard inflationary pressures and how big current pullback may become.

19/07/2008

Futures analysis

The futures managed to get back above the key long term support area of 2450 by posting a two day sustaied rally. This short term reversal was caused by a huge trend change in Crude Oil, which fell for the last three days, fueling rebounds of global stock markets. The most important factor now, is that the whole pattern in daily timeframe (Crude) indicates important reversal, which will mean, that we are probably going to forget about inflation for the next couple of weeks even. As for WIG20 futures the nearest upside target, if the pullback continues, appears to be near the last swing high of 2600. This is strictly for short term only, I do not know how strong is the market yet, to judge if it is capable of going any further. Hopefully, upcoming week will show us, whether buyers are aggressive enough to drive the futures further upwards. Short term catalysts for Monday are two important announcements from America. First is the ever-volatility-causing Beige Book and New Home Sales, which are expected to be little better than previously. Watch these two carefully, as unexpected data values will probably set short term sentiment for the global stock markets.

As you can see on the intraday chart, the futures gapped up on Thursday and thus confirmed previously defined support area between 2407 and 2417 (check my last post). More important fact here is that price found and confirmed support at the long term 2450 level, which was my primary requirement for an uptrend to begin. Friday was more volatile, as we had indecision in the Crude Oil, that finally collapsed at the end of the day, causing stock markets to post rallies before closing. As for Monday, the nearest support and resistance levels are plotted on the intraday chart to the left. First is of course the last downside window level between 2477 and 2500, which will act as a primary support zone. If the market confirms it and bouncess off, then comes a resistance area between 2525 and 2540, which consists of previously established intraday swing highs and lows. According to my rules, now I should set my stance for the next session, judging by american stock market's close. The last trend in DJIA and S&P500 is to the upside, which is likely to continue, but my concern is, that indexes closed near important two-day resistance, which may still be rejected. My stance thus is neutral/bullish. The futures are above supports, have some room for any potential upside action, but still might remain in a sidetrend until American opens. I would not be surprised, if conclusion came late in the day.

16/07/2008

Futures analysis

The futures still remain below main long term resistance of 2450. Though today's session showed little volatility and ended up posting a low-range candle in the daily timeframe. On one hand, there is actually no sign of anything, that I could consider a selling climax, but on the other hand, we have technicals from the global markets. WIG20 futures are in the middle of a significant retest, which happens to align with a top on Crude Oil and maybe a bottom on Dollar. Conclusion is, that the global markets have entered a crucial period, which is to solve short and mid term situation again. The most important short term volatility catalyst is of course earnings reports season, which everybody is paying attention to, especially in the States.

The market has slowed down recently, as you can see on the intraday chart. Today's session went in a bearish/neutral sentiment, which resulted in posting a bear trap below previous day's low of 2417. We have an intraday support now, which has been confirmed and will act as a good reference point for upcoming trading sessions. 2407-17 area became an emergency support level. Now we have to wait and see the result of retesting 2450 from the downside, which will show if the futures are strong enough to go back above it and develop a longer pullback, than previously. I would rather expect an uptrend tomorrow, unless the market gaps up in the morning. The States rallied nicely today and did not show any signs of reversing current trend to downside, so according to my rules, there are greater odds of continuation than reversal and this occurrence is going to be reflected by WIG20 futures here. If the market reaches above 2450, I marked the nearest significant resistance of 2475, which corresponds with yesterday's continuation gap.

15/07/2008

Futures analysis

Awaited retest finally occurred today, as the futures posted a downside gap in the morning and declined to reach 2450 area - low of May 2006. It is sort of odd situation, because the market posted actually a continuation gap near the crucial support instead of exhausting itself, which would signal an early short term reversal. Nevertheless, the close lies below 2450, so we have to wait for a confirmation, in order to consider current level a significant pivot point. In the wake of recent market momentum, this could even firstly become a resistance (tested and confirmed from the downside) without stopping/stalling or pulling back. Volume has reached the highest levels since the last week, so it is possible, that the futures are nearing a selling climax. Our benchmark (the States) declined today after previous announcements on Fannie Mae and Freddie Mac, which spurred concerns about economic growth and inflation. It can even get more pesimistic tomorrow, after data on industrial production and core CPI.

Intraday chart shows, that the futures were not strong enough to reach above even previous day's low of 2477. Decline, which started an hour before the noon reached to a support of 2420 - long term level. You can also see, that the market tested 2450 primarily from the downside and later posted a bull trap even, which is not a good forecast for any bulls. 2420 acts as emergency support for tomorrow. Any price action below this point has greater odds for continuation than reversal. 2450 will serve as a pivot point for the next two days, in my opinion, unless the market becomes so weak, that it will be unable to reach back and retest this level. My stance for tomorrow is bearish. American stock market tried to recover today, but eventually posted a double top pattern at resistance marked by previous day's lows and remained in a sharp downtrend all the way to the close. S&P500 futures have 14 more points to retest today's lows and this current move is likely to be continued at least just after opening tomorrow, that is why I think WIG20 futures will follow.

13/07/2008

Futures analysis

Is that even a pullback? The futures only managed to post a two day rally, after a downside exhaustion gap on Tuesday. More important thing is that the price was not able to reach above both short term moving averages (10- and 20-day), which shows how weak the market has actually become. Only 50 points left before retesting 2450 low of May 2006. Volume has been rising recently, so that may be an early sign of another exhaustion, considering that price is in the vicinity of a key long term support zone. It is a matter of time now, when we retest 2450, so watch this level closely, if you want to get involved in near future. Monday's macroeconomical announcements will cover data from New Zealand and UK, with more importance to exotic far east currencies, so it may have little influence on stock markets in advance. Tuesday and Wednesday will be crucial, as there is going to be whole lot of news along all timezones and this, I think, will determine market sentiment for the rest of the week.

As you can see on intraday chart, the recent two-day pullback ended up with an exhaustion rally on Thursday. The futures posted a double top pattern near the 2580-90 zone and declined sharply, which indicated a huge momentum selloff on Friday. The market managed to recover a bit just minutes before the close, but did not show any clear evidence of buying yet (except volume climax). That means I would advice to wait for at least one higher low above 2490, before even thinking of getting involved on the long side. Key intraday levels for Monday: - 2485-95 support area - the last hour low with double bottom pattern - 2520 resistance - the market has already given itself some room to reach this one - 2540 - in case of a sharp upside rally The only emergency support level is 2470 area, which is the last low protecting retest of 2450. Friday's session in the States closed in negative territory, but the market managed to recover late in the day and even posted an uptrend, which is more likely to continue than reverse on Monday. Though my stance is neutral, because decline on Friday means decline on Monday, besides the markets start very slow in the beginning of each week, which is natural.

05/07/2008

Futures analysis

The market does not show any signs of pulling back yet. If you look at the daily chart, you will see that the futures have gained so much momentum, that they cannot manage to reach even the shortest of moving averages (10- and 20-day periods). If you look at the intraday chart, you will see, that there are only side corrections, which do not show any buying evidence. The market continues to get weaker and weaker, until it probably reaches our main downside target, which lies near 2450 (May 2006 low). Basically, global stock markets managed to pass through short term earnings period, which were not actually that bad, but now comes the time for macroeconomics again. We had U.S. Labor Department announcements on Thursday, which indicated, that american economy is actually more important, than interest rates movement in Europe or even the far east. Next week will bring more news, this time about another currency-moving factor - Trade Balance. This is coming out on 11th of July and will determine intermediate term sentiment in global markets.

Three last sessions were rather volatile, as a result of macroeconomical announcements, that came along with exploration of new lows in the futures market. The futures are constantly bouncing on and off only intraday highs and lows, which shows, that there is not really any point of high significance on the way to 2450, where the price could stop for longer period of time. Sideway action is the only thing, that could happen throughout the last couple of weeks and this does not sound very optimistic. As for short term market sentiment, I would expect a neutral/bearish action on Monday. The States did not trade on Friday, because of Independence Day and did not show any strong buying evidence back then, so it would be another 'holiday effect', which happens almost every time. As for WIG20 futures, they closed near the most important of intraday areas - 2517, which will act as another last resort support here on Monday. Below that, there is only Thursday's bull trap support around 2510, which may hold a little. After this level is broken, there will be only 50 points to the long term support zone of 2450, where you could look for a potential short term bottom.

30/06/2008

Futures analysis

Still no signs of pulling back, at least in the daily timeframe. The futures have gained so much momentum and are entering the most crucial long term support area already. Crude oil hit the record today, but reversed, causing the stock markets to rebound a little. There might be some evidence of buying, as you can see on the intraday chart, but unfortunately for the bulls, it is not going to last longer than a single day or two. Tomorrow will probably bring more volatility to the global markets, as there is going to be a whole lot of macroeconomical announcements throughout all timezones. Although every single one will affect the overnight Dollar (O/N from american perspective), the one we should pay attention to is coming from the America itself - ISM manufacturing index. As it is expected to be lower than previous reading, I assume, that american stock market has already discounted what is about to happen. If you look at the chart of Dow Jones Industrial Average, the trend changed to downside again before the close (analysing chart from right to left), though all of the indices rallied in the morning.

Volatility came back and has driven the futures market throughout the last three trading sessions. Every single day, price posted sharp corrective moves to the upside, but that eventually showed no sustained evidence of buying with little odds for changing even short term market sentiment. After breaking down through 2605 support area, the futures found it a resistance already on Friday. It did not take long for the market to reach new lows after that, which were not able to hold back the price and prevent from reaching further downwards. Today's new minimum has been established at 2555 and will naturally act as a 'support of last resort' at least tomorrow. As you can see on the intraday chart, the futures managed to bounce back from 2555, retraced all the way to Friday's close, but showed not enough buying, that would force the price further. I only marked the most significant intraday resistance and support zones on the chart, because there are numerous levels, that emerge just from previous price swings. And in this current case, when there has been a lot of volatility lately, the futures will probably retest each one of these areas, which are of similar significance. Means, you have to watch the tape closely, in order to anticipate, which one of these levels will appear as the most important.

25/06/2008

Futures analysis

The market continues to decline and does not show any early signs of pulling back, judging by the daily chart. Moreover, it is gaining momentum, by pulling away even from the shortest, 10-day moving average. Also, expected Fed's decision did not affect even short term market sentiment. Daily downside price target lies near 2450 area and will remain there unless the futures make a short term low with a corrective move. Such price action could give some room for the market at least to retest nearest levels, making the selling more gradual, not sharp and panicky. That is just a hypotesis, which I will start considering, when the market actually makes a short term low. Given quite large momentum, that lasts from at least 3000 level, continuous action here could look just like previous sharp decline, which led to a retest of January low. As you can see, longer term sentiment comes to markets in cycles. Firstly, we had subprime bubble nearly year ago, then came concerns on banks' earnings along with global inflation, then came the Fed and hopes of avoiding recession in America and finally, when it appears, that there is no way to avoid it - inflationary concerns came back again (this time with little 'support' of poor earnings). In extreme long term (weekly and monthly timeframe) the Dollar managed to reverse only in relation to Japanese Yen. European major currencies (Euro, Pound and Swiss Frank) are still in a deep uptrends, backed by strong momentum. My bet is that, the Dollar and stock market trend will reverse only if something serious happens to commodities. If commodities bubble becomes little too optimistic at last, then it would be a good time to start looking for bottoms in stock markets.

Today's session proved me wrong at least on the open. The futures gapped up, opened just below previous day's high and managed to break above 2650 level, which I did not expect. As it turned out, it was an exhaustion rally, which allowed new shorts to come into the market. Tuesday's last hour high quickly became retested support area and when it was finally rejected, the futures retraced back to yesterday's close. 2650 became a pivotal point for today's session, as it was tested a couple of times and finally determined intraday trend. Reversal came in late in the day, just hour and a half before the close. Technically, this market was not weak enough to retest 2605 in a single session, so my bet is that it is probably going to happen tomorrow. If you look at today's chart of Dow Jones Industrial Average, you will see, that Fed's action had already been discounted ealier and what happened after the announcement was basically a bull trap, that set the trend for the next day. According to my rules, this downtrend is likely to be continued tomorrow, so my stance for WIG20 futures is also bearish (in terms of trend, not the close). Still, the market has to move out of 2625-30 area to even reach and retest 2605, which could even happen in the morning right away.

24/06/2008

Futures analysis

Previously mentioned flag pattern managed to evolve little sideways and has been broken lately, which indicates that the market continues the long term downtrend. I thought, that price action, that took place inside the flag would extend to at least short term bottom, but the futures only managed to retest flag's upper band and declined from there. In this case, downside price target for the daily timeframe appears to be near 2450, which corresponds with a low of May 2006. Important thing to note here is that this point is also aligned with 61,8% absolute retracement taken from the all-time high of 3970 (3970 times 0,618). Needless to say, inflationary concerns are back, thus making traders actively bet on interest rates again, which is about time, because tomorrow Fed announces its policy statement. Current sentiment, according to Cleveland Fed indicates that, there is nearly 90% probability, that Fed Funds will remain unchanged at 2,00%. Side or downtrend in american interest rates means further weakness in Dollar, which preceeds bonds and stock market.

The last two sessions after changing of the contract series were only different in terms of intraday volatility, which was significantly higher today, than on Monday. The futures only managed to post two bull traps above 100-period moving average (5-minute timeframe) and barely changed the trend after noon. Two most important intraday resistance levels are 2650 and 2625-30 zone. Given today's sentiment in the States, I do not think, that the futures will be able to reach back to 2650. As the market cleared any short term price levels to the downside, the only significant support area is naturally 2605, because similar level was reached all the way back in 2006 and thus applies to longer timeframes. 2625-30 will be a pivotal area, as it has already been tested multiple times. So, if the market manages to bounce from 2605, then the key uptrend/downtrend decisive factor will be this area. As I said earlier, the States changed trend to bearish before the close, so it is likely to be continued on the next day (stance is bearish/neutral). Nevertheless, Fed policy statement always causes volatility, so I do not recommend taking any positions before the announcement.