16/06/2008

Futures analysis

"Calls for anticipation", that is what the technical analysis bases on and that is exactly what traders actually did today. Yesterday, in the wake of an uptrend, which had established in american stock market I expected an uptrend here in WIG20 futures. But what good is a positive close in S&P500 or NASDAQ if most of trading happened overnight (looking from american time zone point of view)? Eurozone's higher-than-expected inflation rate acted as a catalyst, that fueled currency market's sentiment for the whole day basically. Probably, it would have changed, if american macroeconomical news was better. So a declining Dollar encouraged european stock traders to make calls for anticipation, that there will be selling in America, which occurred, but only in the morning and for a really short period of time. WIG20 futures posted two higher lows in a row, accompanied with two higher highs, but as you can see on the daily chart, this does not confirm any sustained upside action, as today's session brought mostly selling.

The only upside action for today occurred in the morning, as the futures posted a gap and reached 2745-55 resistance, that I pointed out yesterday (exact peak is marked on the intraday chart here). As the market opened above previous day's last hour high, sellers came in and managed to reverse short term trend. As you can see, the most important factor to confirm any bullish action here, was violated to the downside (yesterday I stated, that if we were to witness a sustained uptrend, the futures had to stay above at least 2710). Now, 2710 has become a potential resistance level. The situation is two-fold. A pullback as short as three days will show, that the market is very weak, which means quicker breakdown of January low level. On the other hand, according to my trend continuation rule, if WIG20 futures remain in alignment with american indexes, then the market will probably enter more of a sideway trend, giving some room to bottom out and maybe to post little larger pullback (thus delaying possible breakdown in time, so it will gain momentum). Tomorrow there is going to be a lot of data announced, which are expected to be rather bad, so I will not make any predictions based on technical indications, as they do not work when volatility comes into place. The only thing, that may matter in this case are potential resistance and support areas: 2710 and 2745-55 resistance and 2656, which is the low of Thursday. Breaking and staying below 2656 confirms long-term downtrend continuation.