13/07/2008

Futures analysis

Is that even a pullback? The futures only managed to post a two day rally, after a downside exhaustion gap on Tuesday. More important thing is that the price was not able to reach above both short term moving averages (10- and 20-day), which shows how weak the market has actually become. Only 50 points left before retesting 2450 low of May 2006. Volume has been rising recently, so that may be an early sign of another exhaustion, considering that price is in the vicinity of a key long term support zone. It is a matter of time now, when we retest 2450, so watch this level closely, if you want to get involved in near future. Monday's macroeconomical announcements will cover data from New Zealand and UK, with more importance to exotic far east currencies, so it may have little influence on stock markets in advance. Tuesday and Wednesday will be crucial, as there is going to be whole lot of news along all timezones and this, I think, will determine market sentiment for the rest of the week.

As you can see on intraday chart, the recent two-day pullback ended up with an exhaustion rally on Thursday. The futures posted a double top pattern near the 2580-90 zone and declined sharply, which indicated a huge momentum selloff on Friday. The market managed to recover a bit just minutes before the close, but did not show any clear evidence of buying yet (except volume climax). That means I would advice to wait for at least one higher low above 2490, before even thinking of getting involved on the long side. Key intraday levels for Monday: - 2485-95 support area - the last hour low with double bottom pattern - 2520 resistance - the market has already given itself some room to reach this one - 2540 - in case of a sharp upside rally The only emergency support level is 2470 area, which is the last low protecting retest of 2450. Friday's session in the States closed in negative territory, but the market managed to recover late in the day and even posted an uptrend, which is more likely to continue than reverse on Monday. Though my stance is neutral, because decline on Friday means decline on Monday, besides the markets start very slow in the beginning of each week, which is natural.