17/06/2008

Futures analysis

Although the market managed to post third consecutive higher low, today's daily candle appears to be an inside bar inverted hammer with strong selling, that came late in the day. As you can see on the daily chart, the futures have formed a flag pattern already, which is just next to main psychological support area marked by January low. Flags or pennants usually indicate continuation as they are considered flat corrective patterns, meaning that markets either gain strength (bullish) or become weaker (bearish). If you want to get involved in the daily timeframe, wait for the closing price to confirm breakout either way. The best situation, would be if this flag pattern was breached by a single wide-ranging bar, as it would give a clear signal of continuation or reversal here.

As I expected, today's session showed some volatility, which was caused by constant betting on macroeconomical data from the U.S. The market closed positively, though did not show a clear uptrend for the most part of the day. As I said earlier, important thing to notice here is that selling came in right before the close and finished forming of an inverted hammer, that appeared in the daily timeframe. Such occurrence leads me to a simple conclusion, that the odds are greater for continuation of this latest decline, especially when american indexes behaved pretty much the same way before closing. Downtrend, that lasted there for the most part of the day did not change, so this will be our reference point for tomorrow's action, which is likely to be continued. Moreover, weak housing and industrial production data combined with higher inflation brought more concerns about America going into stagflation. Thus my stance for tomorrow is bearish, so I marked potential support areas on the intraday chart, which may hold the declining market. Technically, the futures are still above the most important short term reference point, which is 2710, so it will be the first area to overcome (possibly with an overnight gap). Then comes the last swing low of 2680 and 2657-70 critical area.