08/11/2007

Futures analysis

Expect the unexpected - this is probably the best way to describe latest market behavior, which posted another downside gap and ended up forming a hammer candle in the daily timeframe. I am starting to get more confident about what I wrote couple of days ago. What we see, is a delayed reaction on rallying commodity prices, mostly driven by crude oil, gold and silver - the best bets for inflationary times. The futures have formed a double top as historical peak and today's session apparently proved as its confirmation. I was worried about this market getting below the long term moving averages, but it seems that the selloff gained some strength, fueled by constantly rising volume and declining open interest (stop losses). Basically the daily timeframe now shows somewhat of a polarity in this market and that unfortunately fuels the whole concern about whether this situation will turn into bear market or not.

5-minute timeframe apparently shows opposite situation, at least for the short term. Today we had third in a row downside gap, which usually signals price exhaustion, meaning that the decline is over and about to reverse. The price ended up in much wider support zone, than I pointed out in my previous analysis. First of all, the 3700 level is broken, meaning more weakness in the market than I primarily expected. Of course, there was a retest of this level, but from the downside, because of the overnight gap. Considering another selloff, that is going on in America, it is too hard to judge really, where to pick a bottom in this market. Only reason supporting at least a stall (not yet a reversal) is that american index futures posted intraday double bottom patterns late in the trading session. That would be the setup for tommorrow and beyond probably, if nothing unexpected is about to happen overnight.