07/05/2008

Futures analysis

Four-day rally in the futures stopped today at upper band of the symmetrical triangle pattern, as you can see on daily chart. Declining 100-day moving average has not been reached yet, but is nearing mentioned price band, so it is probably going to act as more solid resistance in the upcoming days. Now we are in a situation, where it could be tough to judge potential future market action. Today's macroeconomical announcements in America greatly influenced the Dollar, bonds and commodities, but hardly affected the stocks, so we have a divergence here, suggesting different sentiment on different markets. My bet is, that the most important indicator is the stock market, regardless of currencies, because trends might change overnight and discount everything that happened after SEC's announcement (though Yen has corrected simultaneously). Although there is some room between the upper triangle band and the moving average, I rather expect the band to be confirmed as resistance tomorrow. American indexes did not change the trend late in the day, so chances are greater, that continuation will occur.

On Tuesday, the futures posted a corrective pattern, but overall momentum did not let the price decline below 2950, let alone 2940, which I expected to act as a direct intraday support level for that day. 2970-90 support/resistance area was penetrated yet again. Today, the futures managed to post a sustained move above this level and remained in an uptrend for the most of the day. My initial upside price target in case of such breakthrough was 3020, but it did not act as a strong resistance (became support later). The second target however (3040) managed to stop the rally and from here I expect a larger reversal pattern to be formed tomorrow (unless there will be overnight gap, which is quite possible). Naturally, 3020-40 becomes a new resistance area and if the market gets stronger in time, then it will probably be acting as violation level for the daily symmetrical triangle pattern. As for the downside, the nearest most significant target appears to be again 2970-90 zone. It has been tested numerous times and proved to be very significant. If that does not hold, then come Tuesday's and Monday's swing lows - 2955 and 2940 respectively.