12/10/2008

Futures analysis

The futures have finally reached a 50% decline, equaling the bear market from early 2000s after dotcom bubble. Price retested the peak of year 2001 on Friday, where another massive selloff took place, driving the index almost 12% to the downside. The volume has reached its peak also, which shows us similar situation, when January lows were formed. As you can see, nobody believes in any rescue plans or lower interest rates anymore. Credit market remains completely frozen, because banks and other financial institutions do not trust each other, which is caused by high risk of insolvencies or even further bancrupcies. As for intermarket factors, 30-, 10- and 5-year U.S. T-Notes have posted double tops, indicating that yields will not pay off anymore. Commodities are also declining sharply, meaning that the markets do not fear inflation. The last thing to move upwards right now are the stock indices. It is hard to judge now, how strong our current support will be (1980 area), but I would rather expect some sharp bull traps first, than a clean bounce, if we are to see another corrective wave here.

As for 5-minute timeframe, we do not have any solid short term levels to stop potential downside action. There is this only one swing low from Friday, which will probably be retested on Monday. One single level is not much, considering current market volatility. But if we look at the american stock market Friday close, we would see that prices posted rounded bottom patterns with sharp rallies shortly afterwards. Main indices managed to retest Thursday's closes, which resulted in huge downside spikes, shown in the daily timeframe (after closing bell). This may not indicate buying just yet, rather short covering, but technicals are technicals and if price posts sharp rallies near the end of the day, it might signal, that short term trend is changing. From now on, the most important level will be 2105, which marks recent downside gap. Gap resistances are the most wide and solid areas to overcome for markets, so any action above it will suggest, that price is capable of forming at least short term bottom, which could then evolve to a reversal pattern later. Tommorrow banks in Japan, Canada and the United States will be closed, because of holidays, which is going to influence foreign exchange markets, causing low liquidity and volatility. Let's see if it works for the stock traders.

04/10/2008

Futures analysis

The market has broken through major long term areas of 2450-500 and we are back retesting 2005's October low, which lies near 2215. If you look at the daily chart, you will see, that the volume has been significantly higher recently, which could indicate a potential bottom forming. That would be reasonable, because retest of 2215 posted actually the same pattern as in January, when first pullback occurred. The pattern consists of two candles, where the latter one exceeds previous day's low and ends up indicating a rally. It is a typical price exhaustion formation, when the last of the bulls give up their positions, by closing stop loss orders. Massive selling causes exhaustion, because it leads to a situation where ther is no one left to sell and market reverses. Volatility Index has reached previous historical levels of year 2000, when the dotcom bear market had started. Also, Dollar yield curve has maintained its normal shape, which is good for the currency and economy in the longer term. Short term interest rates are expected to be lower again, which suggests, that the market does not fear higher inflation anymore. Every single one of these mentioned factors is a good reason to believe, that we might have another bottom in the global stock markets. One reason, that would support opposite situation is that WIG20 futures fell 'only' 36%, in comparison to 50% after the dotcom bubble.

As for intraday timeframe, the futures posted a sharp bottom after two-day decline. This reaction was after the Non farm payrolls data, which caused euphorical buying of the Dollar (though the stock market slumped afterwards). I would expect even another downside gap on Monday, but the question is: how far can the futures open to the downside after such unexpected decline in America? The first potential support area appears to be 2330, which is Friday's intraday swing low. If the price breaks through this level, then the nearest target would lie around 2300, which is the latest low after downside window (30th of September). Upcoming week will bring us usual data on crude inventories and initial claims, which cause minor volatility and act as catalysts only for intraday moves. Unless some unexpected news come out, we can focus on pure technical factors. My stance for Monday is bearish. Firstly, because WIG20 futures are in clear downtrend and secondly, because american stock market has not changed its intraday trend to the upside (greater odds for continuation than reversal).