12/01/2008

Futures analysis

Thursday trading session proved me wrong and led to retest the lower band of support zone between 3260 and 3315, exceeding the wednesday low, which I thought was indicating a reversal (strong buying late in the day). On thursday, we had a large volume selloff, which finally caused a retest of the August lows. Friday session led to even more downside action, that resulted in posting one more lower low, but eventually the bulls came back and managed to retrace some of the primary move (explained later in the intraday section of this post). In the daily timeframe, friday session posted a Doji candle with fourth in a row downside spike, proving that the support area held as it was meant to do. Such situation could mean perfect time for a short term pullback, because recently, traders started betting for the Fed to radically cut the rates, in order to prevent recession, but increasing inflation. Radical cut means, that Fed funds rate may reach 3,75% or even 3,50% as indicated by the Cleveland Fed survey.

5-minute timeframe shows, that the price deviated from the channel, that I plotted some time ago. As it can be seen on the intraday chart, the futures violated lower band of the channel, then quickly returned and found support at it again, moving mostly sideways until the end of the day. In the wake of upcoming events and indications provided by daily timeframe, this friday action may now be considered as a bear trap, which could be a starting point of a trend reversal pattern. On the other hand, friday session in America closed over 1% in the negative territory, which could fuel more panicky selling on monday, or even an overnight downside gap. So, if we do not see price moving at least sideways, this whole reversal setup would be for nothing, regardless of the Fed anticipation. No doubt, there is going to be a lot of volatility in the global markets again.