14/01/2008

Futures analysis

The market proved me wrong again and decided to decline even quicker, than I previously anticipated. Moreover, the futures posted fifth in a row downside spike, again indicating price reversal. Though, as you can see on the daily chart, a confirmation is needed - at least exceeding previous day's high, to prove particular pattern valid. Today's candle closed as a hammer with resistance at the August low level and as for the downside - price reached two measured move targets (plotted on the chart as MM1 and MM2). These targets are obviously below the August low, but yet above the next closest support area. In terms of interpreting the price close itself, we have entered the bear market, but in terms of broader technical analysis, this could still turn into a bear trap, if the hammer candle is confirmed.

Intraday chart shows the whole extended decline, which drove the price all the way below the August low. In fact, there are very few situations, where such action happens, because prices do not usually break through important levels after posting such extended rallies or declines. I was expecting at least a lower high, before the breakdown, but it seems now, that the price might end up finding a resistance at this prior crucial support. The main channel, which bound the price for the whole move was lately violated to the downside, which is the main reason supporting my 'oversold view'. Another channel started to develop from thursday and today's session confirmed it by retesting its lower and upper band. The States are finally recovering at the time of writing, so there might be a possibility of a pullback tommorrow (or even an upside morning gap). This week will bring the most important data, which is to gauge the condition of american economy: PPI, CPI, production and capacity, retail sales, housing starts and building permits. All of this combined, is going to be a major catalyst determining longer term direction of the global markets. As for the short term - more betting on upcoming Fed decision, that is going to cause volatility.