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%.