12/02/2008

Futures analysis

Volatility tries to shift the trend again in the daily timeframe, as today's session confirmed, that the futures have established a higher low and are going to test the March low one more time. It appears, that after the huge decline in the beginning of 2008, the market became deeply oversold and thus, what we have been witnessing recently is a bottoming process, not a continuation pattern obviously. Today's rally occurred on little higher than recent volume, which indicates that the market has breadth and is capable of breaking through the 3125 resistance, to extend corrective wave probably back to the declining 50-day moving average at least. Though, the price still remains below this crucial resistance area, so we have to wait for a confirmation of eventual upward action (sustained move above 3125). Today's catalyst, that caused such euphorical buying, was Berkshire's bid for municipal bonds guaranteed by troubled MBIA. Traders' bet was, that such move from a big player will help stem credit losses.

Yesterday I stated, that late in the trading session, the short term trend was put to a test, because of double top pattern posted by the futures (with no corresponding higher lows). The market gapped up in the morning, which shifted the whole situation again in favor of the bulls, keeping the price above rising 100-period moving average for the rest of the day. The futures firstly broke through 3005 resistance, which was the closest upside target for today and then got passed by 3060, which I mark as the nearest support level for tommorrow and upcoming days. As you can see on the intraday chart, there is still little room for this market to reach 3125, which will probably by touched tommorrow, as american indexes gained about a half percent on the close (bulls have support). The open interest was declining throughout the whole session, so today's rally was a typical short squeeze. Watch 3125 closely, to avoid any bull traps, as new money has to come in and support further uptrend.