30/01/2008

Futures analysis

Fed, as expected, cut the benchmark interest rate by 50 basis points to 3% today. As you can see on the charts, this spurred more euphorical buying, which resulted in breaking through 3030-50 resistance zone, here in WIG20 futures. The volume is still diminishing and open interest has flattened, so that may indicate, we could be entering a period of indecision. Conservative upside price target appears to be the March low of 3125 points as it corresponds with another potential resistance, which is the declining 20-day moving average. Again, this is a potential resistance, which does not mean, that the sellers will immediately return when price hits the exact level. Total extent of current pullback will be confirmed by a candle pattern in the daily timeframe and eventual selling evidence in lower timeframes. Fundamental factors remain the same: rate cuts with fiscal stimulus policy increase inflationary pressures, which will mean further weakening of the Dollar and rising commodity prices - alternatively to stock markets.

In the 5-minute timeframe, today's session was basically a sideway price action, which was a sign of indecision - the markets waited for the Federal Reserve. Consolidation took place still below the resistance zone of 3030-50 with double test, but actual breakthrough occurred right before the close. Moreover, this whole action took place on lighter volume, than previous breakthroughs i.e. in the last couple of days, if you look at the intraday data. In other words, it was to weak, to qualify it as a move with sustained price momentum, but until trend does not change to the downside, what I am doing is picking a top. American indexes erased whole 'Fed move' gains at the end of the day, so there is not much left to judge eventual overnight action in WIG20 futures. Eventual upside gap could exceed 3125, but that definitely would be a fade candidate, as it lies in a deeply overbought range. Tommorrow's announcements cover mostly labour market data, so that would be a good short term catalyst to gauge condition of american economy.