25/01/2008

Futures analysis

Today's candle in the daily timeframe is not actually a hammer, due to its body size in relation to shadow, but as it is posted just next to the key resistance level, it could mean, that the pullback may be getting exhausted. The reason for pullback extension is that the whole retracement took place in the same time as the last leg, which was posted after gap from 3070. The futures also made another higher low today, contracting the price near key turning point for a potential breakout. On the other hand, we have more reasons to see continuation of current mid term decline. Firstly, today's high reached for the declining 10-day moving average, which acted as a resistance already. Secondly, this moving average corresponds with geometrical resistance, that is: 38,2% Fibonacci retracement. Thirdly, american stock indexes are in the negative territory at the time of writing, so that would be another catalyst for bear market to continue. Bouncing of this current resistance would mean further market weakness and will probably lead to retest the low of 22nd January.

The whole two-day contraction range has established between previous swing high of 2950 and resistance level near 3030. Recently I was expecting, that if the price breaks through the last swing high, it would go back up to 3050, thus increasing probability of entirely filling a gap (15th January). As you can see on the 5-minute chart, there is still some buying evidence, which keeps the price above the 100-period moving average (somewhat dynamic trendline). The futures formed a pattern of a symmetrical triangle, which in the wake of prior swing being made to the upside, indicates possibility of going higher. Though, open interest and volume have been constantly declining throughout the last days, during pullback. This is the last reason for decline continuation. Typically, when markets rally or decline, they are supported with incoming new money. Low volume corrections indicate only profit taking and set up possible entry points for those who anticipate next move in the same direction. If the 100-period moving average gets tested again and again, it is more likely to fail, than to act as support.