29/10/2007

Futures analysis

A record day in the futures. The historical peak equals now 3970 after making a gap on the open today. I don't think anything special is going to happen until wednesday, when the FOMC policy statement is due along with other crucial news including consumer spending. Expectations are for 25 bp. rate hike, so this is definitely priced. The question is: what is going to happen, if the Fed decides not to cut the rates or will lower them by even 50 bp (excluding volatility)? Either way, it is going to be crucial in the longer term for global markets, because soon we will find out if the United States are going into recession or stagflation. As long as the futures remain above moving averages in the daily timeframe, there is little probability of current uptrend to reverse. The open interest is still rising, price is making higher lows, volume is rather stable without frequent spikes, so this market has room to advance.

Today we had a session with little volatility, which is another indicator telling, the market still waits for FOMC announcement. No sharp spikes, no massive amount of money flowing in or out, the price remained in a sidetrend for the whole day. The intraday chart shows main support and resistance levels, that will be crucial in the upcoming days. Main resistance is obviously the new high - 3970, from where I plotted the Fibonacci grid. The nearest support level is 3940, which is prior resistance (retested and confirmed today). If the price stays above this level, then we would get more confident about this pattern not being a bull trap, thus rejecting a potential reversal here. Moreover, a longer consolidation in current 30-point area with rising open interest will make eventual breakout stronger to reach new all-time highs. 3880 has already been tested twice and as long as this market does not reach it again, the main uptrend will remain intact (the more a particular resistance/support level is tested, the more it is likely to fail). 3780 is the emergency level, which means that breaking below it could even mean a double top confirmation and start of a downtrend in this market.