29/09/2007

First, let's look at the WIG20 futures chart in a daily timeframe (continuous). Last week the market pulled back and filled the bullish gap, which occurred just a day or two before the contracts and options expiration. The gap occurred after Federal Reserve cut the target rate by 50bp. Then, throughout the whole week we've seen couple of announcements showing some weak macroeconomic data in the United States, which is obviously the main cause of profit taking and maybe even opening short positions by aggressive traders in the short term (indicated by increasing volume). On friday, the market closed exactly on prior breakout level and in my opinion, this area is going to be defended by the bulls in the upcoming week (resistance may become support).


If the area fails, then I would expect this market to pullback a little bit deeper and make another (third to be precise) higher low, which would be established on the rising trend line, that I've drawn on the second chart. That would also happen to be 50% retracement of the july-august decline, which could prove as even stronger support. I'm pointing this, because of similarity to the last biggest corrective wave (may 2006) where a lower high was made after bouncing back from 2440 area, came back to 50% retracement of the prior move, stalled there and then returned to the major, long term trend. As we can see here, Fibonacci retracements work in a slightly reverse direction. Nevertheless, price action matters the most, especially when it forms patterns that occurred earlier (though in a different scale).

The worst case would probably be a decline all the way to the S2 level, but that will need a strong catalyst (worse than expected earnings reports from companies which are coming up shortly or maybe some major macroeconomic news).

For now, I maintain my bullish stance and with a little help from the global markets I expect a retest of july highs in the upcoming weeks. The catalysts for this event would definitelly be:

• A retest of july highs by Dow Jones Industrial Average and S&P500.
• Another rate cut by the Fed, which is indicated by falling short term treasury yields in the U.S.

From monday I will be also posting intraday analysis of the futures market, so we can get a better picture of what was happening on a particular day and also in order to find some trading ideas.