15/06/2008

Futures analysis

I had a lot of work last month, so I could not post on a regular basis. I will try to keep up with my analysis from now on, as I have more time to do so. Since my last post, the futures have managed to retest the declining 100-day moving average, pulled back from there and retested January lows, finally breaking the symmetrical triangle pattern to the downside. So now, we have come to witness consequences of lowering the interest rates in America. Crude Oil has hit new all time highs and is only 10 Dollars away from reaching 150$/barrel objective, which was widely talked about recently. The credit crunch may be over, but now comes inflation. But let's focus on WIG20 futures now. The market managed to bounce from January low level on Thursday and Friday mainly because of simple selling exhaustion. Earlier 4-day decline ended up showing a candle, that exceeded Wednesday's low with its opening price. It is a typical price pattern, especially in a daily timeframe, where it can be clearly seen, that the last traders capitulate by closing their long positions. Such activity leaves everybody on supply side of the market and causes a reversal, because there is no one left to sell and thus, to drive the market lower. Watch Crude Oil now, as more upside action there will punish global stock markets. Breaking the January low level to the downside will set a new price target near 2500 area, as it corresponds with a low of May 2006.

Intraday chart shows how sharp was the last 4-day decline before Thursday, as the futures moved mostly by posting downside gaps, which make a hard time for traders and analysts to pick potential support and resistance areas. Friday's session confirmed actually a 1-2-3 bottom reversal, showing that buyers went more aggressive and are willing to drive this market more to the upside. Short term uptrend has been established, so the odds are obviously greater for its continuation than reversal. Judging by price action in american stock market, I would expect Monday to be an uptrend session too. The nearest intraday resistance level appears to be the area between 2745 and 2755. If the market manages to break through this level, then the next resistance will probably correspond with the last downside gap level of 2785. But remember one important thing when considering getting involved on the long side. Condition for this market to remain in uptrend is that it has to remain above 2710 level (marked on the chart). It has to have enough room, especially near recently established support/resistance levels to form a higher low, so it can bounce back from there and continue to rally. As I said earlier, american indexes managed to post an uptrend late in the day, so the odds are greater for a continuation on Monday. I expect the markets to reach their nearest significant resistance levels until Tuesday, because there is going to be a lot of macroeconomical data announced (including PPI, industrial production and housing market data), that often cause volatility and reversals.