21/01/2008

Futures analysis

Overnight gaps are the main factors, that could deny price patterns in just one session. This is what exactly happened today. Yesterday, in my analysis I still maintained my 'reversal' view of the market, which was caused by a 3-day pattern, consisting of candles with long downside shadows. Also, 5-minute timeframe showed some evidence of buying, but as you probably saw - price action was mostly sideways and as it appeared today, did not show any strength of the buyside. The market weakened to a degree, where it cannot even retrace back to the declining 10-day moving average, thus all the short term signals, indicating a potential short term reversal were denied today. The geometrical support zone, that corresponded with 261,8% Fibonacci projection of a prior upswing was broken and price ended up, touching 2840, which is also previous support. The volume and open interest are still in climatic ranges, making the situation more 'two-foldish', than it actually could be. On one hand, new money, that comes into the market, definitely supports the short side. On the other hand, increased volatility, with new volume highs are indicating, that the market breadth may have reached its oversold climax too, meaning that the supply side itself, cannot provide a sustained move with no pullbacks. Generally speaking, this whole recent selloff is a good example, that price patterns often mean nothing, when it comes to pure market sentiment and also - how hard is to pick a bottom, especially in longer timeframes.

As for intraday timeframe, the whole previous buying evidence, that i pointed out yesterday ended up just as a flat, sideway correction. The futures again opened by posting a downside 90-point gap. As you can see on the chart, prior bull traps, have turned into resistance levels, which was confirmed during the day. The States did not trade today, because of Martin Luther King Day, so tomorrow's session will be the main catalyst for the global markets' next move. As long as the price remains below the intraday moving averages, there is no reason to get long again, fighting the downtrend. Still, we have people holding money in mutual funds. Not all of them have withdrawn their money yet, but they are the major selling force, driving the prices down, so that may explain such extended downside action with no pullbacks here.