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.