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.