20/11/2007

Futures analysis

In the daily timeframe today's action in the futures ended up as a hammer, which confirmed short term bottom, that I was expecting lately. The market has another chance to recover and will probably reach the nearest declining moving average (10-day in this case). Moreover, today's daily candle is so called wide-ranging-day, which is a common indicator of trend reversal. The price exceeded two previous highs, so there might be a chance to see this market at least staying in recently developed range between 3450 and 3570 for little longer than three days, before the week ends. Still there is a lot of volatility in the markets, caused by unexpected macroeconomical data (today's housing starts for example) and also by betting on upcoming December Fed decision.

In the 5-minute timeframe we can see, that the futures have entered a significant short term resistance zone, which in my opinion has become more of a turning point for this market now. That is because getting above 3576 (23,6% Fibonacci retracement) will indicate more strength of the buying side and probably drive the price back to reach the 38,2% retracement, corresponding with prior support/resistance areas. The close in the U.S. is positive, so the odds for tommorrow are rather against the bears. As for mid term action, I do not think that Fed decision to cut the rates would even be a catalyst for a global reversal. Inflationary pressures are high and will improve with eventual cut, because that will weaken the dollar even more and drive commodity prices higher, so we might only see a short term euphoric buying in stock markets and then returning to downtrends on inflation concerns. Leaving the rates unchanged will reduce concerns, but rise those about recession. Either way, my stance remains as before - retest of the august lows.