11/10/2007

Futures analysis

There is absolutely no stopping for this market. The futures have made two in a row extended rallies (420 and 360 points) in exactly two months. Yet, there's 60 more points left, to reach the 4000. Now that the market has entered the 'uncharted territory', everyone is little bit concerned of how long could such a big advance last. The open interest declined near the end of the day, which could indicate, that this market is slowing down. Tommorrow some key news is coming out: retail sales and PPI. Any worse-than-expected data may finally cause the long awaited pullback and then we would see how much room the market will require to decline. Judging by the daily timeframe, it is possible to see a third in a row 1:1 correction as in the case of the previous two rallies (starting from 3300).

On the other hand, judging by the strength of the market, awaited pullback is not supposed to be that big. In my earlier analysis I plotted Fibonacci retracements, to get the idea of market geometry and pointed out a couple of support levels, which could be eventually tested. Now that the rally got so extended, these support levels might not be so accurate as previously and it's possible that the price will not fall below 3880 (lower band of the channel). Yesterday's range of the market was tested twice shortly after the open, but near the end of the session we witnessed another short rally. Upper band of this consolidation channel became support, so the market made another pattern of higher lows.

So my stance for tommorrow depends strictly on the upcoming macroeconomical data. For now, it seems to be the one and only way of explaining the possible next move in such strongly rallying market. The Dow and S&P advanced today, because of Wal-Mart (profit forecast) and a government trade report, which suggests that economic growth is accelerating, so the bulls might have some support tommorrow.

UPDATE: The American indexes fell sharply late in the day and erased whole gains on unexpected news, so the odds for a correction have increased greatly. The initial downside target is obviously the july high, then go the moving averages in daily timeframe.