23/10/2007

Futures analysis

The daily chart indicates that this market is ready to retest its all-time peak. Yesterday confirmed support on rising 20-day moving average and just as I wrote - today we saw a nice mark-up, influenced by positive close of U.S. indexes and fueled by new flow of money into the market (rising open interest). Now, it's just a matter of time for the price to exceed 3960. Moreover, tommorrow starts another streak of important macroeconomical news covering home sales and initial claims in America, which are expected to be lower, thus increasing chances of Fed cutting the rates before end of 2007. That is supposed to prevent U.S. economy from going into recession, so such move will surely drive the stock markets north.

Although the mid and long term look rather bullish, I am not expecting another such extended rally tommorrow just because of one similar pattern shown on the intraday chart. Rectangles indicate this similarity, though only in form, not the size of movement. The last corrective wave in late september ended at 61,8% Fibonacci retracement of prior rally, then posted an upside gap and finally retested the gap level the next day after that. This recent decline has ended almost the same way, but retraced only 50% of prior move. Today we saw a gap and a rally up towards 3940 and a potential retest of gap level is pending right now. Now, we are about to see, if the history does really repeat itself in technical analysis. Remember, that the earnings reports season is still under way, so markets can post gaps or make sharp moves either way, no matter what the technicals are implying.