27/02/2008

Futures analysis

Today's session posted another black candle in the daily timeframe, that exceeded yesterday's close. Another session confirms failure of the pennant pattern and indicates possible next major downside move. The nearest daily price target is now 2860, as the last significant support level of 3030 was broken today. Today's session also included higher trading activity, which was caused by weak macroeconomical data, announced in the States. American economy is constantly slowing down and declining Dollar drives commodity prices upwards again (hedge against inflation).

The futures gapped up on the open as a result of a positive close of american stock market. As you can see on the intraday chart, price opened almost exactly at the lower band of the pennant formation and found resistance there. The market gained much momentum and posted a symmetrical triangle consolidation before breaking through 3025. The whole decline finished at prior resistance level from 11th of February and found support there. If there is no overnight gap, the nearest resistance area for the futures is naturally 3025-30 area, which is where you should watch for reversal bars or patterns, when planning a short position entry here. If 2990 is broken, then the next level of support will be 2950.

26/02/2008

Futures analysis

The pennant pattern was violated to the downside, as price got past its lower band. Volume has reached the highest value since the last eight trading sessions, so we might have a confirmation here already. The declining 50-day moving average is now below 3200 and that may indicate further weakening of the futures market. If the actual daily support is broken (3030), then the nearest downside price target appears to be 2860, which is the last swing low. The pennant pattern no longer works as a symmetrical triangle, in the wake of its lower band violation, but on the other hand, if 3030 level is defended and the market decides to extend current uptrend, then we will probably see a descending triangle pattern, which in that case would be the best bet. To summarize, we have downtrend in the short term and long term direction of the futures is still under a question mark.

The american indexes managed to recover yesterday, which resulted in an upside gap today in WIG20 futures. As you can see, the whole morning action ended up finding short term resistance near 3130 and trend shifted from there posting a wide ranging 115-point candle. Today's macroeconomical news in the U.S. showed rising inflation and dropping consumer confidence, but at the time of writing, the american stock market reacted contrary to that, posting already a half percent gain. In the wake of such bullish price action and WIG20 futures becoming very oversold in the short term, tommorrow session will probably decide, whether prior support levels are going to become resistance (3045 and 3070).

25/02/2008

Futures analysis

The pennant pattern continues to contract under 3195 long term resistance. In relation to friday's close, the futures showed little 0.1% change to the upside, though they were declining throughout most of the trading session. Also, today there was not any significant news, that could change the bigger picture here in daily timeframe. We still have to wait for a confirmation - either upside violation of 3195 or breaking through lower band of the pennant formation. The volume has been constantly diminishing while development of this symmetrical trianle took place, which is a typical correction-before-next-swing pattern as the market gains strength.

Intraday chart shows, that previously mentioned 3045 support was touched and defended today. In my last analysis I stated, that if this point is retested, then it will be the first sign of the symmetrical triangle pattern violation. The close proved, that violation of the lower triangle band was just a bear trap, which eventually widened this whole price pattern. American index futures are little changed at the time of writing, but they have erased all of the morning gains as selling pressure returns. Tommorrow's news includes PPI and consumer confidence index, usually causing intraday volatility. Be careful when entering the market even in the short term, as we are close to important psychological level here in WIG20 futures, making it hard to place a reasonable stop-loss.

23/02/2008

Futures analysis

Back with another analysis after a short break. Throughout the last three sessions, the futures have confirmed formation of a price pattern, which is commonly known as pennant. When this occurs, it usually indicates continuation of previous swing (upswing in this case). Moreover, it has formed just under a major resistance area around 3195, which corresponds with last year's January and March lows. Also, the declining 50-day moving average is now below the August low and with 3195 level it forms heavy resistance for the futures to break through. The market has been showing strength so far, but we still need a confirmation, whether current pullback is going to be extended or not. As you can see on the daily chart, the last candle is an inverted hammer, which suggests that more selling pressure came into the market late during friday's session. At first, it would indicate a downside breakthrough of the pennant pattern, but not if we take into account american session, that always acts as a psychological catalyst, causing overnight action in the global markets. S&P and DJ erased all the morning losses and went back to close nearly 1% in the positive territory. What I expect here is that the WIG20 futures will probably stay inside the pennant for little longer, before breaking through to either side.

5-minute timeframe shows, that although the last three sessions held price inside the pennant, the whole action did not take place without significant increase in short term volatility. Basically, we had three sessions and three gaps to either side. All of these are filled, but as you can see from the chart, the futures did not trend much during the last three days. If we take only friday into account, selling took over late in the day, as I pointed out earlier, but the close remained above lower band of the pennant. As the futures are constantly contracting inside pennant's range, potential pattern breakthrough levels are the last two swing points plotted on the intraday chart: 3160 resistance and 3045 support. These two levels are in such alignment, that touching them will equal beginning of potential pennant violation (their position exceeds contracting triangle bands, as shown on the chart). As to make a final forecast, daily candle alignment still works for uptrend continuation (bullish stance, but unconfirmed), unless the futures fail to break the 3195 resistance or violate current pennant pattern to the downside.

19/02/2008

Futures analysis

The futures remain in short term uptrend, but in the last two days, there has not been much of an extension of ongoing pullback. Price stopped at previous support level (established in the beginning of 2007), which has become resistance - 3165. The 50-day moving average has passed through the August low level and will be acting as somewhat 'dynamic' trendline resistance in the upcoming days. Nonetheless, with such significantly lower volatility than before, the futures might stay inside resistance zone between 3165 and 3265 for a longer period of time (becoming range-bound). Though, the first most important point will be mentioned 50-day MA, so we will have to wait until its tested, to form possible scenarios.

The market did not manage to break through the main resistance, which is 3170 despite today's double test. The close ended up at 3130, finding support at previous resistance, but price action, that took place late in the day suggests another possibility of current short term uptrend reversal. As american indexes erased whole gains from the morning (Dow Jones formed a grave stone doji in the daily timeframe), forecast for tommorrow's open would be neutral/bearish. In case of more action to the downside, the nearest support level appears to be the last swing low near 3095. If that is broken, then I expect the futures to fall to 3060 or 3025 (low from where the last upside gap occurred), depending on the momentum. Tommorrow, there will also be announcements, which cover CPI and housing market data, which may cause sharp spikes or mentioned momentum (depends on market's opinion on this news).

15/02/2008

Futures analysis

The futures dropped again today as yesterday's declines in U.S. stock markets forced a global retreat. If we look at the daily chart first, the price found and confirmed resistance at 38,2% Fibonacci retracement of the whole downtrend. This indicates weakness as the market does not even manage to pull back to the declining 50-day moving average. Though, as long as the price remains above 3000 area, short term uptrend will not shift to the downside again (moving averages also provide support). Macroeconomical data is still going against the bulls, as today consumer confidence level dropped to 16-year low along with industrial production (0.1%).

Today's session opened with just a little downside gap (no more than 10 points) and did not exceed 3090 level as I expected. Next, the futures posted a bull trap at 3125 and began to fall down from there, breaking through 3090 and reaching back 3025 support, which is just 5 points away from my yesterday's forecast. If this area is broken, the next downside target would probably be 2985. I expected this to be more intermediate term target (as for intraday traders), but it appears, that in the wake of declining global markets, this level might be tested just in the beginning of the next week. Upcoming announcements start from wednesday and will cover CPI along with housing starts and building permits, to further gauge recession probability.

14/02/2008

Futures analysis

The last two trading sessions did not clarify, where are the futures are going to go from the March low level of 3125. Wednesday began from a gap down, but eventually buyers managed to take control and drove the price up to this pivotal point. Because of yesterday's gains in U.S. stock market, the futures posted today an upside gap above 3125, but for the most of the day, the trend was down and we are back at the starting point. The bulls are struggling to extend current pullback further to the upside, but in the wake of recent events (more growth concerns in America) this will take more time (if any). The August low is now corresponding with the declining 50-day moving average, so if the price stays in rather flat corrective pattern, then reaching 3265 might not occur whatsoever. Good thing for the bulls is that short term volatility stepped off again, 10- and 20-day moving averages have recently made a crossover, so there is definitely some room before the short term trend shifts again to the downside (at least above 3000 area).

As wednesday brought just a flat corrective pattern, that did not change the short term trend, today we had a downside violation of the rising trendline (plotted on the chart), that has been established over the last four days. The price found resistance at previous support level of 3190 and retraced from there to 3090-3125 area (both, upper and lower band are also prior support and resistance levels). As the short term uptrend switched to neutral, today's decline of american stock indexes puts further upside action in question. S&P declined over 1% and NASDAQ almost 2%. Depending yet on asian close, there might be an overnight gap to the downside tommorrow in WIG20 futures. If the price breaks down through 3090, then expect it to fall firstly to 3030 and if that level fails to hold, then to 2985, but that is longer term target.

12/02/2008

Futures analysis

Volatility tries to shift the trend again in the daily timeframe, as today's session confirmed, that the futures have established a higher low and are going to test the March low one more time. It appears, that after the huge decline in the beginning of 2008, the market became deeply oversold and thus, what we have been witnessing recently is a bottoming process, not a continuation pattern obviously. Today's rally occurred on little higher than recent volume, which indicates that the market has breadth and is capable of breaking through the 3125 resistance, to extend corrective wave probably back to the declining 50-day moving average at least. Though, the price still remains below this crucial resistance area, so we have to wait for a confirmation of eventual upward action (sustained move above 3125). Today's catalyst, that caused such euphorical buying, was Berkshire's bid for municipal bonds guaranteed by troubled MBIA. Traders' bet was, that such move from a big player will help stem credit losses.

Yesterday I stated, that late in the trading session, the short term trend was put to a test, because of double top pattern posted by the futures (with no corresponding higher lows). The market gapped up in the morning, which shifted the whole situation again in favor of the bulls, keeping the price above rising 100-period moving average for the rest of the day. The futures firstly broke through 3005 resistance, which was the closest upside target for today and then got passed by 3060, which I mark as the nearest support level for tommorrow and upcoming days. As you can see on the intraday chart, there is still little room for this market to reach 3125, which will probably by touched tommorrow, as american indexes gained about a half percent on the close (bulls have support). The open interest was declining throughout the whole session, so today's rally was a typical short squeeze. Watch 3125 closely, to avoid any bull traps, as new money has to come in and support further uptrend.

11/02/2008

Futures analysis

An upside spike at declining short term moving averages was posted today by WIG20 futures in the daily timeframe. Today's bar is not actually a hammer, but its form indicates more selling force coming into this market. Price action however is still taking place above major 50% Fibonacci retracement of current rally, meaning that eventual retest of January low (2680) will occur much slower, that I initially expected. This week is going to bring important data, covering retail sales and industrial production in the United States, on which traders will gauge condition of american economy. Nonetheless, in the short term these announcements act as psychological catalysts, that always influence the stock markets, often rejecting technical price patterns.

5-minute chart shows, that friday's decline of american indexes did not significantly influence today's open in WIG20 futures, as the market opened with only 30-point downside gap and remained in an uptrend for the most part of the session. The futures exceeded the last swing high near 38,2% Fibonacci retracement of the previous decline (plotted on the chart) and continued to rally above 2980 until 50% retracement, which corresponded with 3005 (prior level of support and resistance). Price action just minutes before the close shows that, the short term uptrend began to shift, as the futures posted a double rising top with no corresponding higher lows. However, market closed near 38,2% Fibonacci retracement, leaving room for any upside action, that may take place tommorrow in the morning, as american indexes closed slightly positive today. Upside target remains at 3005, as the intraday high and downside targets are: 2900 (previous swing low; outlined in previous analysis) and then 2860 (local minimum).

08/02/2008

Futures analysis

Today's session posted an inside doji bar with a higher than previous low for the day. It is also second in a row downside spike near the crucial support level, which is 2860. Theoretically such price pattern should indicate a reversal of current decline, but in the wake of declining american indexes, it will probably be rejected on monday. WIG20 futures had volatile end of the week, but still managed to remain inside current price range between 2860 and 3125. Volatility entered again, as in the morning, european stocks advanced on gains in commodity producers, but in the second half of the trading session, markets declined, as american stock market fell on credit losses concern. Nonetheless, technically the main downtrend will continue when futures break down through 2860 support, at least until 2680, which is the most recent daily low.

Friday started off with posting a short rally, which quickly ended up as a bull trap by returning back below the moving averages. The first half of today's session was basically an ABC correction of previous day's upswing and after finally establishing a low at 2875, the futures went back and posted almost exactly mirrored pattern to the upside. Three-leg rally shifted intraday trend again, forming somewhat an inverted head and shoulders with a rising neckline. I outlined only the nearest support and resistance levels, as they appear to be the most crucial for possible short term price action. 2955 is prior swing high and will probably be tested on monday, even having the States 1% below yesterday's close. 2902 is today's swing low of the last rally before the close. Moreover, it corresponds with all of the moving averages as a turning point, that shifted the trend today, so anticipate further declines below that.

07/02/2008

Futures analysis

Today's session posted a candle, that retested prior support level of 3860 in the daily timeframe. It is not an actual hammer, nonetheless produced a downside spike, as a result of buying, that occurred late in the day. This is only a confirmation of particular support/resistance area, but need not indicate a trend reversal already (explained in the intraday section). Still, we have another decline building up on rising volume. Open interest has finally moved to a new high, which may imply, that new short positions are being opened. Recent price action has been constantly showing typical setups for entry in terms of swing trading. We had this long, very extended downside leg, followed by a low volume rally and now, as the market declines again, trading starts to become more active here. Though, as long as current support (3860) remains intact, the futures will be range-bound for a longer period and may produce more complex pattern before the next move.

Thursdays are often accompanied by volatility and as you can see on the intraday chart, the futures posted a sharp decline just after noon. Here, you can also see, why I did not qualify today's action as a trend reversal. The longest, 100-perdiod moving average, became resistance after the futures recovered from 2860. It obviously means, that the short term trend is down and as long as the price remains under this MA, there is going to be no reason to get long here anyhow, unless you want to play against the current. American index futures closed on break even actually, as rallying financial stocks balanced with earnings forecasts cutting retailers. The odds for an overnight gap have been slightly reduced. If 2940 holds as resistance, then we would probably see a retest of yesterday's low (2884) and if that fails, then today's low of 2860.

06/02/2008

Futures analysis

The futures are falling down after retesting the March low on monday. The market gapped down in the morning as a result of negative close in the States yesterday and finished just only half percent above previous close. Today's low is also prior resistance level of 2885, which was tested in late January, during the panicky selloff. Low volume pullback, that recently took place is getting confirmed daily as a natural continuation pattern in current long term downtrend. If 2885 support is broken, then the nearest downside target in the daily timeframe would appear to be 2680 low that was established on 22nd of January. The U.S. companies are cutting profit forecasts, confirming earlier concerns about recession, so the stock markets are returning to downtrends. I do not think, that further rate cuts will change market's opinion on what is going on in any way. Weakening Dollar will be inflicting pain to the stock market by causing inflationary pressures.

Two days ago I stated, that if the 3050-70 support area fails to hold, then you would start to pay attention to the next nearest downside targets - 3030, 3000 and 2930. Yesterday, the futures opened at the upper support area band - 3070 and then posted only a flat corrective pattern, which eventually led to a sharp decline late in the day. This whole downside action was caused by poor macroeconomical data from the U.S., again spurring recession concerns. As you can see on the intraday chart, such important psychological catalysts often cause rapid emotional reactions in the markets, which in case of WIG20 futures resulted in rejecting all of previously mentioned potential support levels. The whole decline ended up today in the morning, as the futures posted a downside gap, falling into previous support/resistance area between 2885 and 2910. As a result of such a sharp downside move, the market quickly became oversold, so today's session was in an uptrend all the way to the close, entirely filling overnight gap. American indexes closed nearly 0,50% to the downside and that puts me into pretty much neutral/bearish stance for tommorrow.

04/02/2008

Futures analysis

Just as expected, the futures have retested the level of March low, which corresponds with 50% Fibonacci retracement of just one last leg in current downtrend. The market gapped up again, creating potential of more upside action, but eventually ended up posting an upward spike and declined late in the day. Price is currently above previously mentioned key resistance, corresponding with 38,2% retracement of the same downswing, so the rules for an extended pullback apply nonetheless. Now, in the upcoming days, price action will determine, whether it is a sustained move or not. Apparently, today's daily candle does not show any momentum, that would already ensure extension, as there was significantly lower trading activity, than in previous couple of days. The volume has been constantly diminishing throughout the whole rally, regardless of Fed actions. Open interest has flattened and pretty much has not gone anywhere, since the beginning of the correction. Such alignment theoretically indicates, that the market has no breadth and thus, that the pullback will not go further above the March low. However, price is the only thing that pays, so we could even see the futures going up on reversal candles again (as in October).

5-minute timeframe shows, that the March low level was tested three times today, but it eventually led to a failure and short term trend change. Decline, that took place late in the day found support at prior resistance area, particularly its upper band of 3070. If the States close negatively, then I would expect more pressure to the downside tommorrow, especially in the morning (possible overnight gaps). If the whole 3050-70 zone fails as a support, then the nearest downside target would be 3030, which is also prior support/resistance level and apparently the last swing low. Watch this 3030 level closely, to gauge price momentum in case of a breakthrough, because this will determine odds for retesting other potential downside levels - 3000 and then 2930.

01/02/2008

Futures analysis

The futures are still wandering inside the main short term resistance zone, which lies between 3030 and 3070. Moreover, the price pulled back to the declining 20-day moving average, so now this whole area is of more significance and has become important turning point. We are closing to retest the March low, that lies just 30 points above today's high, which is naturally another potential resistance. My view remains as before: a sustained price action above current resistance (3070) will give reason for eventual short term long entry here. By 'sustained' I mean staying above for at least three or four days, in order to determine actual price pattern. The futures are still coming back from a deeply oversold range, accompanied by great volatility, which generates many false signals. More interest rate cuts are also expected. This is pure psychological catalyst and another cause of such volatile actions.

As you can see on the intraday chart, the futures gapped up in the morning as a result of american indexes' positive close. Short term trend shifted yet again, but even at the end of the day, price remained basically still at upper band of the channel, that I pointed out yesterday. The first large volume rally was caused by Microsoft bidding for Yahoo, but then the market quickly pulled back and basically just marked time until the States have opened. These rapid spikes are the volatility, that I was talking about. If you want to play this long, you must accept bigger risk and most importantly, not to blindly trust the market, that breaking above certain levels is going to maintain momentum. The market does come back, especially when in the middle of a bearish trend correction, when volatility is significantly higher than in uptrends. Another part of today's rally spikes was announcement of the Nonfarm Payrolls. America is losing jobs and this is spurring more concerns about whether the economy will fall into recession or not. Further rate cuts with fiscal stimulus will cause more inflationary pressures, hurting the stock markets.