01/02/2008

Futures analysis

The futures are still wandering inside the main short term resistance zone, which lies between 3030 and 3070. Moreover, the price pulled back to the declining 20-day moving average, so now this whole area is of more significance and has become important turning point. We are closing to retest the March low, that lies just 30 points above today's high, which is naturally another potential resistance. My view remains as before: a sustained price action above current resistance (3070) will give reason for eventual short term long entry here. By 'sustained' I mean staying above for at least three or four days, in order to determine actual price pattern. The futures are still coming back from a deeply oversold range, accompanied by great volatility, which generates many false signals. More interest rate cuts are also expected. This is pure psychological catalyst and another cause of such volatile actions.

As you can see on the intraday chart, the futures gapped up in the morning as a result of american indexes' positive close. Short term trend shifted yet again, but even at the end of the day, price remained basically still at upper band of the channel, that I pointed out yesterday. The first large volume rally was caused by Microsoft bidding for Yahoo, but then the market quickly pulled back and basically just marked time until the States have opened. These rapid spikes are the volatility, that I was talking about. If you want to play this long, you must accept bigger risk and most importantly, not to blindly trust the market, that breaking above certain levels is going to maintain momentum. The market does come back, especially when in the middle of a bearish trend correction, when volatility is significantly higher than in uptrends. Another part of today's rally spikes was announcement of the Nonfarm Payrolls. America is losing jobs and this is spurring more concerns about whether the economy will fall into recession or not. Further rate cuts with fiscal stimulus will cause more inflationary pressures, hurting the stock markets.