05/11/2007

Futures analysis

The futures have retested the lower band of the support zone, that I plotted in my previous analysis. Everything is going just as I have forecasted. We have a lot of volatility going on in the markets, which is caused by rising concerns on subprime mortgage crisis, affecting financial companies' earnings reports. Today we had another CEO stepdown, this time in Citigroup, which also posted huge writedowns. The technicals are still good for this market in the mid and long term. In the short term though we have these crossing 10- and 20-day moving averages, which are currently depicting ongoing decline in the daily timeframe. My only concern about this crossover is that, the last time we saw these averages crossing near the all-time high was when the global markets collapsed, because of subprime mortgage crisis in the United States and it may repeat. Longer term view favours of course rising 50- and 100-day moving averages and that also leaves little more room for the price to decline safely, which means that the overall trend may become neutral, but not bearish yet.

In the 5-minute timeframe the market retested yet again the most important short term support zone, which I pointed out earlier in october. And such retest confirms the significance of 3780 area, which is also a 50% Fibonacci retracement of the last rally, that led to the new peaks. Today, the futures opened again with a downside gap, which is third downside window in a row, suggesting supply force exhaustion. Moreover, the confirmation ended up as an intraday double bottom and may actually indicate reversal in the short term downtrend. Such reversal may occur, if we consider that today's decline in America has already been priced. If it has not, the futures could start tommorow session with a move to the downside again. As long as the price stays above the crucial 3780, there will be little danger of damaging the main uptrend.