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.