07/01/2008

Futures analysis

Only 40 points left before retesting December and 110 to August lows. Today's session posted an inverted hammer, which is a sign that the hard selloff may be slowing down and indeed this is a typical situation when markets come to important psychological levels. This may also imply, that before breaking down below the lows will be preceeded by posting another lower high by the price, increasing the strength of eventual breakdown (extended rallies or declines often fail to break important levels at the first 'try'). The nearest support after December lows is of course 3265, which is the low established after 'Fed move' (the rate cut) in the late August. If that fails (confirming the double top pattern), then there is another support zone, which may be the first downside price target, as for the short term. Nonetheless, price action below 3265 would confirm, that we have entered a bear market.

5-minute timeframe shows, that today's price action was mostly sideways, indicating that the declining market may be slowing down. What it appears to be now, is that we have a channel inside a channel. Today's channel has little less downslope and it has developed near the lower band of the main declining channel. Sideway action near important levels of support or resistance definitely suggests a slowdown (but not yet a reversal), so there is still a chance to see a pullback, creating opportunity to get into the downtrend before the market finally breaks down. The nearest eventual upside target appears to be prior support of 3420, which was tested a couple of times before, confirming its short term significance. Unless the market gaps up tommorrow, this appears to be the closest entry point for the selling force, then comes the declining upper band of main channel.