30/10/2007

Futures analysis

Today in the daily timeframe we saw a retest of the rising 10-day moving average, which has been constantly proving to be a solid support level in the short term. Futures market showed a little bit of correction over the last two days and that means, the price has remained safe and sound in a state of being ready to reach the uncharted territory. This two-day decline has developed on very low and yet diminishing volume. The open interest flatted a little, but there is no reason to get short, unless you trade aggressively. This is a typical pullback, which indicates strength of the bulls in a market, because of above factors. There is also possibility, that we are going to see a retest of 20-day moving average, if the decline gets more extended. I am pointing this out, because 20-day MA is lined up with the latest gap support, which for now would really be tough to break (unless Fed decides to leave the rates on current level). Also notice, that the market lately gapped up twice and did not retrace to fill them, so the next gap up in this one might be considered as a sign of price exhaustion.

Today the futures gapped down and continued a decline, that started on monday. The price ended up bouncing off the 61,8% retracement of the whole recent upward channel, that developed from a gap. Considering that american indexes are in the negative territory late in the day, tommorrow session might start from a decline, or even a downside gap. The whole situation is caused by worse-than-expected consumer confidence data, which indicated that Fed may not cut rates on wednesday. So the last day before news we have this indecision going on in the markets. To this moment, a 25bp. hike has already been priced, thus we might expect now, that anything 'worse' than this will fuel further declines in global markets.