24/06/2008

Futures analysis

Previously mentioned flag pattern managed to evolve little sideways and has been broken lately, which indicates that the market continues the long term downtrend. I thought, that price action, that took place inside the flag would extend to at least short term bottom, but the futures only managed to retest flag's upper band and declined from there. In this case, downside price target for the daily timeframe appears to be near 2450, which corresponds with a low of May 2006. Important thing to note here is that this point is also aligned with 61,8% absolute retracement taken from the all-time high of 3970 (3970 times 0,618). Needless to say, inflationary concerns are back, thus making traders actively bet on interest rates again, which is about time, because tomorrow Fed announces its policy statement. Current sentiment, according to Cleveland Fed indicates that, there is nearly 90% probability, that Fed Funds will remain unchanged at 2,00%. Side or downtrend in american interest rates means further weakness in Dollar, which preceeds bonds and stock market.

The last two sessions after changing of the contract series were only different in terms of intraday volatility, which was significantly higher today, than on Monday. The futures only managed to post two bull traps above 100-period moving average (5-minute timeframe) and barely changed the trend after noon. Two most important intraday resistance levels are 2650 and 2625-30 zone. Given today's sentiment in the States, I do not think, that the futures will be able to reach back to 2650. As the market cleared any short term price levels to the downside, the only significant support area is naturally 2605, because similar level was reached all the way back in 2006 and thus applies to longer timeframes. 2625-30 will be a pivotal area, as it has already been tested multiple times. So, if the market manages to bounce from 2605, then the key uptrend/downtrend decisive factor will be this area. As I said earlier, the States changed trend to bearish before the close, so it is likely to be continued on the next day (stance is bearish/neutral). Nevertheless, Fed policy statement always causes volatility, so I do not recommend taking any positions before the announcement.