18/12/2007

Futures analysis

Yesterday I anticipated a corrective wave, that would hold the price above 3440 before returning into downtrend. Today, the market proved me wrong and decided to violate this significant support area. Daily candle formed a hammer at the end of the day, so that long downside shadow (see the chart) indicates a potential slowdown in this declining market. The problem is, that price remained below prior lows (double bottom) and 3440-50 area should be considered as a potential resistance zone now. The open interest declined the most in the last four days, which in this case implies massive long exiting or rather stopping out of the buyside traders. Unless the futures stay below 3440-50, this whole situation could develop into a bear trap as the market entered deeply oversold range, but this is an optimistic short term scenario. More probable in my opinion is a retest of the august lows.

In the 15-minute timeframe we can see that today's downside price target was actually a 161,8% Fibonacci projection of October rally, which ended up with a double top reversal pattern. Here, it can be seen more clearly, that what we had today, was a complete sell-off, finally exhausting downside price action. Now, that the States have closed in positive territory, the price is more likely to stall in currrent range between 161,8% projection and 3440-50 resistance area. Depending on overnight action in the far east markets, it may even retrace back above this level, delaying further declines. The key factor is now the macroeconomics. European Central Bank injected money again into the interbank market, cooling panicy selloffs, that took place lately. But now, what matters most, is a moment, in which the market's opinion on situation of lending institutions (subprime crisis results) will change to such extent, that it will sustain in the bear mode for longer period of time.