17/12/2007

Futures analysis

The futures retraced back to 3450 support level, which previously was the foundation of double bottom pattern. Last time I stated, that breaking confirmation level for this double bottom will indicate more selling pressure, alerting that return to bear market is possible. Of course, retest does not mean immediate breakdown, especially after such extended downside move. As the market closed near to the key psychological level, everything will now depend on overnight action, fueled by stock market in America, which is again in deeply negative territory. Secondly, such move could have already been priced in advance, so there is still a chance to see WIG20 oscillating around this key support level tommorrow.

As we can see on the intraday chart, the head and shoulders pattern, that I pointed out a couple of days ago, was confirmed, but market action got so extended, that the price greatly exceeded its estimated target. Eventually, this led to a full retracement of prior 5-wave rally. Today's high and low marked again important previous support and resistance levels. The price is now in a contraction zone between 3450 and 3540. This contraction range happens to be the same size as the nearest corrective wave in this decline (marked by rectangles), which will work as a breaking force of further downside action in the short term. If the market stays on tommorrow's open in this zone, my bet would be for a correction, at least to retrace back to the upper band of this range. Breaking below 3450 and then 3440 will signal that the bear market is gaining strength.