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).