22/01/2008

Futures analysis

Today was a special session, because Fed acted on emergency and lowered the benchmark rate by 75 basis points. This move as expected, caused short term euphorical buying and could further cause the long awaited pullback here, in WIG20 futures. In the morning, the market posted a huge 130-point gap to the downside as a result of yesterday's global panicky selloffs. The gap appeared to be in the potential support zone, which I pointed out recently. This retest of 2700 now marks another significant turning point for this market in terms of pure technical factors. Today's close reached up to 2880, which is the lower band of previous support area retested last week. This price range will now be acting as a potential rectangle in upcoming days, defining support and resistance levels, if we are going to see only a side correction. Nonetheless, today we had a wide ranging day and if the price comes back above 2880, then there would be room even to get back and retest March lows of 3120 in the longer term. Volume has been consistently rising throughout the last five sessions, so there is more potential of finally confirming at least a short term bottom here in the futures.

Just after the open, we saw the end of recent quick selling, which resulted in actual bear trap, that soaked some sidelined money in finally putting an end to this extended decline. Again, the whole action, that took place late in the day, was a reaction to Fed's move, so if you consider previous buying evidence failures, then even getting back above 100-period moving average may not ultimately stand for a confirmation, that a bottom has finally established. Moreover, judging by the 5-minute chart, we can get the idea of how important and widespread is the resistance area, that the futures have to break, if this whole pullback is ought to be extended. As long as futures stay above this longer term MA and also post a pattern of higher lows, then it will mean, that the buyside is gaining strength, which will open up some chances for showing some more upside action. The States are also trying to regain the lost ground, but major indexes are still one percent below the previous closes, at the time of writing.