18/05/2008

Futures analysis

Since my last post, the market has managed to retest long term support/resistance level, which is of course 3070. It also corresponds with still declining 100-day moving average, so we have come to a situation, where there could be an upside breakout (extending current rally), or a rejection of 3070, which will mean long term downtrend continuation. The last two sessions in the daily timeframe showed, that it will take some time yet to gain strength before eventual breakthrough. 3070 so far remains as confirmed resistance level, as Thursday session posted a sharper selloff, that exceeded previous two days' closes. On Friday, the futures declined a little, but the whole trading took place mostly sideways, so you can see on the daily chart, that although we have made a higher low, there has not been any clear evidence of relative strength. As for short term only, there are two price targets in case the market goes either way. The nearest support level appears to be at 2980 and if the futures bounce back from there, then it would indicate strength needed for an upside breakthrough, later on. If the market manages to break above 3070, then the nearest resistance is at 3130, but more important level in my opinion will be the end of first corrective since January decline (3190-3200). This is another level, that will determine long term strength of this market.

The futures managed to stay outside of 3010-45 range only for a single day, that is Wednesday. Considering price action since then, I can tell, that unless it is rejected - Wednesday's pattern is a bull trap. Now that it has been penetrated a number of times, 3010-45 area will be the main intraday resistance level. If the futures break below 3010, then they will fill the gap from 12th of May and if it does not hold as support, then it will mean a decline to at least 2985-90. But in the wake of Friday's american stock market close, I do not think, that we are going to see a clear violation of current price range. What I mean is that the States managed to recover and even posted an uptrend on Friday, that lasted more than a half of the trading session. According to my rules, price action posted before the close (I measure the market from right to left, to get the idea) is continued on the next day. American stock indexes managed to retrace back to Thursday's close and found it a resistance level, but did not post a clear reversal pattern, that would change intraday trend to downside. My stance for monday is neutral. The only catalysts, that may change market sentiment to bearish on Monday despite the technicals are of course macroeconomical announcements. These will include housing data and consumer sentiment index.