07/11/2007

Futures analysis

I have learned one really important thing - stick to your primary opinion, especially when you are forecasting the price action. Firstly, I was saying that the futures have yet little more room to retrace, because of the moving averages catching up close to the price. Yesterday I changed my mind and wrote, that this market has found its ultimate short term support and is about to hit the highs again. So now, we have exactly what I said in the first place - retracement towards 50- and 100-day moving averages. Volume was little higher than average in the past few days and open interest declined a little bit, so definitely today we had somewhat of a selloff, or stopping out of the weak holders. On the daily chart I plotted another support zone, which I think might be tested, considering high volatility in the global markets lately. So, if the main uptrend is ought to stay intact, then we would see some bear trap spikes or candle shadows, which would indicate accumulation phase. The whole situation, that took place today was caused by China officials saying that, in the wake of weakening USD, they are considering diversification of their currency reserves. That hit the USD/JPY mostly, which corrected after declining for almost twelve hours.

Today, the futures declined sharply without even looking back until very late in the day. The price did not reach former support and found resistance even lower, which is a sign of weakness in this market. That indicates possibility of further decline, to eventually reach 3700 area, thus the last major upside gap. The double bottom, that I pointed out on monday did not hold obviously, due to this unexpected announcement from China. As always, keep an eye to close in America, because it will determine, whether the correction is over (already priced) or not (which would mean retesting of 3700). We have entered a period of great uncertainty, because the stock markets have been rallying along with commodities basically since late august (Fed decision). The dollar is constantly declining, which drives the commodity prices north, causing great inflationary pressures and threatening, that american economy will develop at a very slow rate. Now that WIG20 futures posted a global double top and then fell back down, it could imply, that the stock markets have finally reacted to such big rallies in crude oil, gold and silver. My concern now is that, if price breaches through the long term moving averages, this could mean a trend reversal and, eventually lead this market to become bearish.