04/02/2008

Futures analysis

Just as expected, the futures have retested the level of March low, which corresponds with 50% Fibonacci retracement of just one last leg in current downtrend. The market gapped up again, creating potential of more upside action, but eventually ended up posting an upward spike and declined late in the day. Price is currently above previously mentioned key resistance, corresponding with 38,2% retracement of the same downswing, so the rules for an extended pullback apply nonetheless. Now, in the upcoming days, price action will determine, whether it is a sustained move or not. Apparently, today's daily candle does not show any momentum, that would already ensure extension, as there was significantly lower trading activity, than in previous couple of days. The volume has been constantly diminishing throughout the whole rally, regardless of Fed actions. Open interest has flattened and pretty much has not gone anywhere, since the beginning of the correction. Such alignment theoretically indicates, that the market has no breadth and thus, that the pullback will not go further above the March low. However, price is the only thing that pays, so we could even see the futures going up on reversal candles again (as in October).

5-minute timeframe shows, that the March low level was tested three times today, but it eventually led to a failure and short term trend change. Decline, that took place late in the day found support at prior resistance area, particularly its upper band of 3070. If the States close negatively, then I would expect more pressure to the downside tommorrow, especially in the morning (possible overnight gaps). If the whole 3050-70 zone fails as a support, then the nearest downside target would be 3030, which is also prior support/resistance level and apparently the last swing low. Watch this 3030 level closely, to gauge price momentum in case of a breakthrough, because this will determine odds for retesting other potential downside levels - 3000 and then 2930.