Tuesday, December 4, 2007

04/12/2007

Futures analysis
The futures bounced off from the declining 10- and 20-day moving averages, but the price has pretty much remained steady in the same area over the past few days. Moreover, mentioned averages are about to make a crossover, so recently we are witnessing indecision in the market. Even there is not much of volatility now - the markets are waiting for Fed's decision, which is coming up on 11th of December. As for strict technicals, in the daily timeframe, the futures made a higher low in relation to price action from 28th of November. That means, the buyers have not given up yet and started betting for a rate cut beyond the ocean. As I wrote in one of my previous posts, this is what I expect from the markets in the short term. If Fed cuts the rates, it may cause short term reversals in declining stock markets, but in my opinion, this will not last for long. Euphoric buying will be just natural reaction to major catalyst, which is such event, but clearly the rest lays in fundamentals. Lower rates will further weaken the dollar and simultaneously drive commodity prices upward, eventually causing recession in America and a slump in stock markets.
Basically, what was happening over the last two days, was that this market formed a short term bottom, which put an end to a wave, correcting last week's 3450-3600 rally. Price firstly tested the 50% Fibonacci retracement, which is the natural and most common level of support in terms of swing trading. Then, today in the morning, the futures posted a bear trap just below this retracement, bounced off of prior support and rallied, to eventually form a bullish engulfing pattern, by retracing the whole monday's move. One only thing, that concerns me, whether the price is going to retest the latest high (3620) is today's close in the U.S., which is slightly negative. This always has influence on morning price action in WIG20, but I do not completely neglect possibility of retesting 3620 tommorrow or day after that.

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