11/12/2007

Futures analysis

Today's session in the daily timeframe ended up putting the price in a congestion zone between two longer term moving averages - 50- and 100-day. This is a natural reaction to an extended rally, that took place lately and lasted for almost two weeks. Those last two daily candles are lined up in a pattern, that is called a dark cloud cover and indicates price stall or reversal. In this case, I am only talking about a short term reversal, because of major catalyst, driving this market up, which was the Fed anticipation of course (to this day). Now, that the market indicates a potential correction, there are two significant support levels, that can hold the price in bullish mode, depending on the size of eventual pullback. First is the most recent 3670, which is now alligned with 100-day moving average, second is of course 3610-15 area, alligned with the latest double bottom pattern.

As I am writing this, the Fed cut benchmark interest rate by a quarter point, which immediately caused speculation, that it will not improve economical situation. This is a good example on how the market can turn on just one catalyst, which I expected quite some time ago. The inflationary pressures are too high and Federal Reserve has little room to maneuver left. But let's look at the 15-minute chart. Here we can see, that the rally has finally ended, finishing a three-leg corrective wave, which brought the price back to crucial 3700. As this was a five-wave short term uptrend, now in the wake of a catalyst (Fed's decision) I expect to see a failure of this rally and probably retracement to previously mentioned support levels in the daily timeframe. Only returning back above 3700 will open a chance for the bulls to step back in.