31/01/2008

Futures analysis

Today's session posted a bearish engulfing pattern in the daily timeframe, confirmed by a large candle, that exceeded previous two lows. The futures market decided to double test resistance zone, which eventually spread from 3030-50 to 3070, so only managed to fill the gap of 16th January. As it can be seen on the daily chart, the market has not enough strength to extend current corrective wave, so yesterday's session proved to be just another bull trap - false breakout signal. For the last six trading sessions, the futures have been consolidating and it can still remain this way unless monday's low is broken (2920). The declining 20-day moving average approaches this 3030-70 resistance area, consistently shrinking potential room for any upside action. If the downtrend continues, then the nearest short term target appears to be the low of 2680, as for the daily timeframe.

5-minute chart shows in detail the range of recent consolidation. Today, the futures retraced back to 2930, which is prior support/resistance area. As the market moves sideways, the open interest has been constantly rising, which means that more money is coming in, thus increasing strength of a potential breakout either way. Yesterday I stated, that if the futures post an upside gap in the morning, then it would probably be a candidate for a short, rather than long position. As the States erased their gains in the end of the day, WIG20 futures opened actually with a downside gap in area of yesterday's highs. Sellers stepped right in from the beginning, which eventually caused short term trend reversal (multiple short term MAs crossover). As long as the price remains below the moving averages, odds for a potential breakout from the range will favor downside. Tommorrow's news covers the most important macroeconomical factor, on which the global markets will gauge condition of american economy - the Nonfarm Payrolls. This is always the most volatility-causing announcement, no matter whether it meets the expectations or not, so judge your risk carefully before entering either side.