24/01/2008

Futures analysis

After two wide ranging days, volatility suddenly stepped off the market and as a result, we have a small doji candle, barely touching 10-day moving average, which is lined up with 38,2% Fibonacci retracement of the whole decline. The futures gapped up in the morning, influenced by american indexes' yesterday close. Today's better-than-expected job data in the U.S. definitely works as a catalyst now, which could extend this developing short term pullback. Though we are still below more significant geometrical levels, so that does not necessarily mean buyside comeback anyhow. As long as the futures stay below even this closest retracement level of 38,2%, it would rather indicate, that the market is weakening, thus causing this long-anticipated pullback to fail (unless price forms a flag or consecutive higher lows pattern before breaking 38,2%). The situation might get worse in terms of macroeconomical factors, as Cleveland Fed gathered new data from the Chicago Board Of Trade, covering implied probability of further rate cuts in America (link). Option traders are betting, that Fed will reduce the funds rate to 3.00, thus by 50 basis points.

Yesterday I stated, that if the price manages to get above its last swing high (2950), then it would reach back to 3050, which is the nearest most significant level of short term resistance. That did not obviously happen, as we had an upside gap in the morning (open above the last swing high), which apparently exhausted the buyers, also causing volatility to drop for this session. As a result, the price remained range-bound for the whole day between 2950 and 3005 with little trading activity. As the main resistance zone, that I pointed out in my yesterday analysis was totally skipped by the gap, it now may be considered as the first potential support zone, in case of pulling back again (range between 2890 and 2950). There is a chance, that if the States close positively today, this prior resistance area might not be tested tommorrow yet, but later in the upcoming days, as stock markets abroad drive higher and higher (pure psychological factor).