30/11/2007

Futures analysis

Two hammers have been posted by the futures, indicating a strong selling pressure, which holds the price below 3600. In fact, this double hammer pattern confirms, that current downtrend is not going to reverse yet, so another pullback ended up touching declining 20-day moving average - short term level of resistance. As long as this market stays in current area between 3600 and 3440, such situation prevents this potential double bottom pattern (marked on the chart) to actually form and reverse this downtrend. Now, the futures remain in a sidetrend, which signals waiting for Fed's decision, to solve this twofold situation. Breaking above 3600 will confirm a double bottom reversal, and breaking below 3440 will confirm a rectangle, which is continuation pattern. These are the key psychological short term levels for this market.

The last two-day action was a retest of key short term resistance level, that ended up being the upper band of a possible rectangle pattern in this market. The price has been consolidating in this previously developed range, and as I said earlier, so far there has not been any confirmation of going either way, so we have to wait until price breaks through 3600 or 3440 as shown on the 5-minute chart. The resistance area lays between 3605 and 3620 and today, the price touched its lower band, which established a lower high here, indicating selling aggressiveness. Preventing the price to retest 3440 again is the only level of support, that is plotted above the middle of rectangle - 3555. American indexes have erased their morning gains, so I do not expect any rapid or sharp price action on monday.

28/11/2007

Futures analysis

As it turned out, euphoric buying took place late in today's trading session, which defended short term support area of 3430-50, but the futures closed just at declining 10-day moving average. The global markets totally ignore weak macroeconomical data, coming out from the United States and as a result, we have another rally in the Dow and S&P500, fueled by financial stocks. Now, we can see that what is currently going on is pure short term speculation based on emotional responses to just one or two daily facts. Moreover, there is still a possibility, that the crowd, which is shifting through its emotional states, could drive our WIG20 back to the uptrend. That may occur, because today's price action has established a double bottom pattern in the daily timeframe, which is confirmed if the bulls manage to push this market above 3610 level.

Today's session started with an upside gap, which I expected yesterday. The price retested 3440, which is the longer term level of support and a crucial market point, from where the initial rally had started (and led to establish new historical highs). So now, the whole movement has been retraced by the market. Trading activity emerged after retesting the support and the bulls regained strength, that drove the price back to another short term resistance level, that is 3555. Now, we are facing exactly the same situation as couple of days ago. This could evolve into a double bottom pattern, if the futures manage to get back above 3555 and then reject prior bull trap at 3600. Further from there, it will be safe to say, that trend reversal is coming.

27/11/2007

Futures analysis

As I was expecting yesterday, the price retested its nearest short term support, which is 3450 obviously and is now entering a key psychological support area in the daily timeframe. As recent pullback appeared to be very weak, the overall measured move got extended and shows a new longer term downside target for the futures. The previous measured move indicated a retest of the august lows (taken from 3960 to 3550 and subtracted from this 3-day mid November pullback, that had occurred before the latest correction). Now, if I take the whole move from 3960 to 3450 and subtract it from 3615, it will give us price target of 3105 (assuming, that this market will not form a double bottom right here at 3450 and reverse, which is still possible).

In the 5-minute timeframe, today's price action was just a continuation of previous movement, that took place on monday. The upper trendline, that I plotted on intraday chart will now act as a resistance, while the futures are declining in this pattern of lower highs. As for tommorrow's open, there could be some euphoric buying, caused by today's unexpected announcement of Abu Dhabi Investments 'injecting' money into Citigroup. This event was a catalyst for a rally in american stocks and may drive up the WIG20 futures also, as it usually happens after such increases. The investors did not even care about weak macroeconomical data about falling housing prices and - most importantly - consumer confidence. Tommorrow is the Beige Book report coming out, so definitely there is going to be a lot of volatility in the markets until the week ends.

26/11/2007

Futures analysis

The futures are still in bearish mode and have only managed to reach the declining 10-day moving average, which shows that the buying force is not going to regain strength at least for now. Today's candle in the daily timeframe in alignment with two previous days, has formed a huge bearish engulfing pattern, that drove the close even below thursday's open. This whole recent pullback developed on a declining volume, so in my opinion, the market is poised to decline further. Open interest bouced off just a little and if the price goes below 3450, it would mean that new money supports the short side rather.

Intraday data shows recent price action in more detail and it can be seen, that the futures market has retested some important geometrical levels. I thought, that getting above 3600 would bring more bulls and give reason to get long at least in the short term, but this whole movement appeared to be to weak and everything above 3600 has become a bull trap. Recent volatility caused the price action to be more choppy than usual, so if I was to pick a short term support level, I would still go for 3460-50 area, because of numerous short term lows of lower significance on the way down. Upcoming announcements in America will cover very important data on consumer factors and housing, along with the Beige Book report, so definitely volatility will hit the markets again. My expectations remain the same as before - recession in the U.S. and retest of the august lows.

22/11/2007

Futures analysis

The market finally pulled back to 10-day moving average in the daily timeframe, regardless of what I expected yesterday. Global stocks rebounded, which fueled today's reaction in WIG20 futures. Open interest is still rising and supports this recent pattern on higher lows, indicating more aggressive buying. The 20-day moving average has recently crossed below 50-day MA and is about to cross the 100-day average, confirming prior bearish price action. Still, price movement does not show any signs of reversal, except for the short term. The nearest news from America is coming on 27th of November, so until then the global markets will mostly depend on less significant data from other countries and technicals, which would make my forecasts more accurate.

The 3550-75 resistance zone, that I pointed out a couple of days ago has expanded to 3595. The futures stopped there and closed, extending 5-day rally, which confirmed short term bottom near 3450 area. Today, the stock exchange in America is closed, due to Thanksgiving, so tommorrow we are going to find out, if our futures are strong enough to get above 3600. Definitely, this 3550-3600 area has become a turning point in this market and any reaction either way will define future direction for the price, so it will determine whether this latest action is going to become a bottom, or continuation pattern. As for the global markets, the key is now level of consumption and housing market development in the U.S., because these are the only factors that will save this country from getting into recession and stock indices from the bears. As I said earlier - neither action from the Fed is going to turn up the stock markets.

21/11/2007

Futures analysis

After a wide-ranging-day the market posted an inside bar, which was a natural reaction to yesterday's positive close in America. But low volatility so far confirms, that what has been happening over the last four days is probably going to end up as just a flat correction in this downtrend. Today's announcement about initial claims in the U.S. met the expectations, so we did not witness any sharp moves as earlier. Open interest bounced up a bit, but new money has not managed to drive this market up even to declining 10-day moving average yet, implying more short term weakness. As for tommorrow, the odds are with sellers and I expect another decline, maybe to retest 3450 again. This would probably be driven by today's downside action of american indexes (S&P500 erasing year's gain).

Although intraday action looks rather good (price making higher lows up to retest the main resistance area) I do not think, that there will be any reason to get above 3575, unless something unexpected happens (i.e. overnight news). Basically, today's price movement was mostly sideways, finishing just a quick rally to at least partially fill morning gap. Now that the market has posted just a flat correction, it leaves definitely more room and pressure for the futures to decline and eventually reach august lows, which I expect. So far, I consider yesterday high as a bull trap, unless price stays above 3450 and forms at least a rectangle pattern, what would increase the odds for current downtrend to reverse. More and more expectations are for recession in America, so the global markets have discounted eventual rate cut already (i.e. american bond market).

20/11/2007

Futures analysis

In the daily timeframe today's action in the futures ended up as a hammer, which confirmed short term bottom, that I was expecting lately. The market has another chance to recover and will probably reach the nearest declining moving average (10-day in this case). Moreover, today's daily candle is so called wide-ranging-day, which is a common indicator of trend reversal. The price exceeded two previous highs, so there might be a chance to see this market at least staying in recently developed range between 3450 and 3570 for little longer than three days, before the week ends. Still there is a lot of volatility in the markets, caused by unexpected macroeconomical data (today's housing starts for example) and also by betting on upcoming December Fed decision.

In the 5-minute timeframe we can see, that the futures have entered a significant short term resistance zone, which in my opinion has become more of a turning point for this market now. That is because getting above 3576 (23,6% Fibonacci retracement) will indicate more strength of the buying side and probably drive the price back to reach the 38,2% retracement, corresponding with prior support/resistance areas. The close in the U.S. is positive, so the odds for tommorrow are rather against the bears. As for mid term action, I do not think that Fed decision to cut the rates would even be a catalyst for a global reversal. Inflationary pressures are high and will improve with eventual cut, because that will weaken the dollar even more and drive commodity prices higher, so we might only see a short term euphoric buying in stock markets and then returning to downtrends on inflation concerns. Leaving the rates unchanged will reduce concerns, but rise those about recession. Either way, my stance remains as before - retest of the august lows.