17/10/2007

Futures analysis

Today's session in the daily timeframe posted a hammer candle, which is obviously a sign of stall/reversal, suggesting that this current pullback is to slow down. But on the other hand, the States have already erased all the gains from the morning, caused by some companies' better-than-estimated earnings and that is my major concern, whether this market is going to stop at 10-day MA or not. The Dow and S&P500 are in the negative territory, due to still rising doubts about credit losses. All this is also fueled by slowing american economy (worse housing starts and building permits data) and concerns about inflation. So the futures market stopped out some of the bulls today, but at the end of the trading session, returned back and even exceeded its open just a little bit.

As we look at the intraday data, we can see that the market has found support on prior level of resistance, that I wrote about in my earlier reports, but for some reason I did not mention it yesterday. Prior rectangle pattern has been violated and if the States were to close positively, this could prove to be a solid bear trap, leaving all the strength on the bullish side. As I said earlier, negative close in New York will be a catalyst for the bears, to step into the market again. This would mean retesting today's low and possibly breaking through further to the downside (assuming that we will not witness a gap on the open). The potential range of a corrective wave will also depend on the upcoming news considering initial claims in the U.S. and also the Beige Book. In my opinion, the range is getting narrower, because of important market geometry factors, which are plotted on the intraday chart. Now we have this 38,2% Fibonacci retracement, but more importantly - 3780 level near the 50% retracement, which is marked as the ultimate short term support (because of its significance). Breaking below this would only occur on some serious unexpected macroeconomical data or earnings reports. Watch these levels carefully, as the market will gauge through its psychological states rapidly. This is going to be crucial for determining whether the 'evening star' will be a global trend reversal, or just an indicator for a short term pullback.