03/10/2007

Futures analysis

Today was the day of anticipated pullback, of which I was talking about in my previous analysis. Although we have not yet seen filling of the yesterday's gap, the daily timeframe puts me in a little bit of concern about the strength of the bulls at least in the short term. Yesterday's and today's candle have formed a pattern of so called 'dark cloud cover', which is usually a sign of reversal. Not only the bearish candle has both higher open and close than the previous one, but it is also an 'inside day' (candle's high and low do not exceed previous day's high and low), which signals a reversal too. So we could have a double confirmation here and let's see if the gap is going to provide a significant level of support in the end of this week. For now, the market has more room for a corrective move and if that occurs, we will probably see a test of the rising 100-day moving average.

If we look at the intraday data, we can see that the market is just a few points away from testing the first key resistance level pointed by me yesterday, which is the 38,2% retracement of the monday-tuesday rally. Breaking below it will probably trigger filling of the 43-point gap. In my trading experience, thursdays have always been days of higher volatility (often significant macroeconomic news from the U.S. are the main cause of larger speculative moves in the market). Tommorrow news are initial claims and factory orders. As for now, expectations are supporting the bears, as is the declining Dow.