07/02/2008

Futures analysis

Today's session posted a candle, that retested prior support level of 3860 in the daily timeframe. It is not an actual hammer, nonetheless produced a downside spike, as a result of buying, that occurred late in the day. This is only a confirmation of particular support/resistance area, but need not indicate a trend reversal already (explained in the intraday section). Still, we have another decline building up on rising volume. Open interest has finally moved to a new high, which may imply, that new short positions are being opened. Recent price action has been constantly showing typical setups for entry in terms of swing trading. We had this long, very extended downside leg, followed by a low volume rally and now, as the market declines again, trading starts to become more active here. Though, as long as current support (3860) remains intact, the futures will be range-bound for a longer period and may produce more complex pattern before the next move.

Thursdays are often accompanied by volatility and as you can see on the intraday chart, the futures posted a sharp decline just after noon. Here, you can also see, why I did not qualify today's action as a trend reversal. The longest, 100-perdiod moving average, became resistance after the futures recovered from 2860. It obviously means, that the short term trend is down and as long as the price remains under this MA, there is going to be no reason to get long here anyhow, unless you want to play against the current. American index futures closed on break even actually, as rallying financial stocks balanced with earnings forecasts cutting retailers. The odds for an overnight gap have been slightly reduced. If 2940 holds as resistance, then we would probably see a retest of yesterday's low (2884) and if that fails, then today's low of 2860.