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.