15/01/2008

Futures analysis

Today we had another huge selloff in the WIG20 futures and another example, why market does not care what I think. Though it is quite unusual situation, where we have price breaking through important psychological levels after making an extended decline with no pullbacks. Apparently the global markets gained momentum too, which was caused by poor american companies' earnings and most importantly - worse than expected Retail Sales data, indicating that holiday season did not help retailers at all and spurring more recession concerns again. As you can see on the daily chart, through the last five trading sessions, the market was declining actually on reversal candles, which means, that it formed hammers or posted downside spikes, theoretically indicating at least a slowdown. Those price patterns however did not prove to be valid, because we have not seen any upside action in daily timeframe (not even breaking previous day's high). The last thing to mention is that the open interest has reached new highs, which combined with the rising volume, could mean new short positions being opened (as long term double top pattern has been confirmed). Now, the most crucial catalyst for the markets will of course be the upcoming Fed policy announcement. Fundamentally, it does not make any sense to lower the interest rates even by 50 basis points, as interbank rates are almost a percentage point higher. Secondly, such policy puts even more inflationary pressures (rising commodity prices), causing further declines of the Dollar followed by stock markets.

As for the 5-minute timeframe, yesterday I was anticipating a pullback, which supposed to be supported by rebouding american stock market. The price only managed to retest the lower band of the main declining channel from the downside, but poor Citigroup earnings along with weak macroeconomic data caused global markets to drop rapidly. In the wake of increased volatility, it seems that the nearest upside targets (in case of market finally finding a bottom) appear to be the broken support levels in the daily timeframe (March and August lows). As for the short term, probably the closest level of some significance is the lower band of today's sideway price range (plotted on the intraday chart) - 3170 area. Tommorrow, except CPI data, comes of course the Beige Book, which is a report on condition of american economy. Though it is announced on 14:00 ET, so eventual action here on Warsaw Stock Exchange will take place overnight.