01/10/2007

Futures analysis

Today, the market closed forming a hammer candle, which usually indicates a reversal of a trend. In this case, it means an end of a short term pullback, that's developed during previous week. Last time I expected a pullback to a rising trendline, which occurred, but wasn't deep enough to actually touch the line (nevertheless another higher low was made today). I also pointed out two highs on the chart firstly, to indicate that the '1a' high has developed exactly from a measured move and secondly, to show that corrections, which started from both of these highs align to each other in scale of 1:1 (support and bear trap spike confirmed in a short term trend).

From 15-minute timeframe we get much more detailed picture of what was exactly happening during previous week. After making a top, the market started to decline in a symmetrical channel, first finding a support around the 38,2% retacement of the previous major move upwards and finally testing prior resistance and breakout area. Today's spike ended up bouncing off the 61,8% retracement, which is a common support level in terms of swing trading strategy (defending this level usually equals rejecting uptrend reversal). Now, if we are to witness further move upwards, the first target appears to be the 38,2% retracement, which could become a resistance level (breakdown occurred from there). Second target would probably be around the upper channel line. The strongest confirmation of today's sharp bottom formation (which appears as a hammer in a daily timeframe) would be finding support on the thick line drawn above the 50% retracement, as seen on the chart and then, continuing to rise from there.

The upcoming week will also bring us very important news about initial claims and unemployment rate in the United States (expect volatility).