16/01/2008

Futures analysis

Volume at climax, open interest at climax, downside gap with a Doji bar - does that finally mean, we are going to have a bottom in the futures? This was the 13th straight day of decline, which did not post any pullbacks (as seen on the daily chart). The price has broken through three most important psychological levels and today ended up finding support at the 261,8% Fibonacci projection of previous upswing, before the actual selloff had started. Technicals confirm, that we have entered a bear market and now, after posting such huge decline, the question remains: is the market oversold enough to post at least a continuation pattern? Climatic volume and open interest with increased volatility theoretically indicate such possibility, but before entering the market, one should wait for a confirmation of today's Doji candle. One way is to look at the 5-minute timeframe.

The 5-minute timeframe shows some evidence of buying, late in the day, so it may be a good indicator, which would finally imply a bottom forming process. Firstly, after posting a 90-point downside gap, the futures moved mostly sideways, but with rather sharp moves in both ways. Intraday support of 2930 was then retested and the price formed another bottom, trapping some bears this time and finally finding room for reversal. I also left the moving averages in the intraday chart, to point out this action as an evidence of buying. As it now can be seen, these averages are pointing upwards except for the longest, which is the 100-period MA. So far, the futures have formed this pattern of higher highs and higher lows, which combined with crossed MAs confirms at least this short term bottom. Today's data covering CPI, Industrial Production and Capacity Utilization did not deviate from the expectations, so that would be another catalyst, which may cool market emotions. Tommorrow, the housing market data is coming up, so that will definitely form a short term picture for the global markets.