12/10/2007

Futures analysis

The market is making all-time highs, but the volume is declining, and the open interest has flattened a little bit. Technically, when open interest is flattening near the market tops it signals price exhaustion. On the other hand, there's the news. Retail sales in the U.S. have climbed up 0,6% in September and core producer prices rose less than expected, which lowered concern about America's economy going into recession. That could be a catalyst not only for future gains, but even it might shrink the expected pullback to a flat correction. That would mean forming a pattern of a bullish flag/rectangle above the july highs.

From the 5-minute timeframe we get more detailed picture of what is exactly happening. I pointed out two rectangle patterns to outline the similarity of these situations. In the first rectangle there is this false breakout (bull trap), which I was writing about earlier as a potential reversal pattern. Now that it's been rejected by the market, I have good reason to bet on such situation to repeat in the second case. Recently, the price has formed another (this time narrower) rectangle pattern and also produced a false breakout. Yesterday, I indicated that the upper band of this second rectangle may become a support level, but the american indexes erased gains on the close, which caused an overnight downside gap in WIG20 futures today. So far, today's Dow Jones' 80 point rally is definitely supporting the bulls for upcoming monday trading session, increasing the odds for a retest of the all-time high.