04/11/2007

Futures analysis

Friday's session posted an inverted hammer candle in the daily timeframe, suggesting that current pullback is slowing down, but also that it has little more room to extend and retest previous significant support levels. Another concern is the rising volume, indicating more selling pressure going on recently in the futures. On the daily chart I plotted this support zone, where I think this short term pullback is going to end. Eventually, we could see a retest of rising 50- and 100-day moving average, which are quite close to this zone, if it fails to sustain. As I was warning in some of my previous posts, there is a lot of volatility in the markets right now, caused by ongoing earnings reports season. Recently the major investment banks have been announcing huge write downs, generated by summer subprime mortgage crisis. The american indexes have made lower highs after bouncing off their corrections and now a lot of people are concerned about whether the august lows are going to be retested or not. So we are now in quite difficult situation, because the futures have made new historical highs, but simultaneously formed a potential double top pattern, which could reverse the long term trend if price falls below these two moving averages.

The intraday data shows in detail the support zone in this market (which I plotted on daily chart). Now we can see clearly, that this zone consists of two separate areas. The futures have already pulled back to the first one between 3820 and 3830 and closed there, which does not indicate downside violation yet. The second zone is somewhat 'emergency support' (3770-3780), because it is the lower band of a rectangle pattern, that market has been recently consolidating in. Breaking below this, especially on rising volume could lead to a retest of 3700 and then even 3600, depending on condition of the global markets. So in the short and mid term this market can not only enter a sidetrend, but it might fall lower, suggesting a start of a new downtrend.