27/07/2008

Futures analysis

Dark cloud cover pattern, that formed on Thursday has been rejected by the futures, which indicates that current pullback will continue at least to reach 2680 level (January low on daily chart). Friday's session also closed Wednesday's upside gap. The market managed to gain some momentum again, so we are probably going to see the retest in the beginning of the next week. Notice, that long term 100-day moving average is still far away from the price, so I would not be surprised, if we had same consolidation pattern as after establishing January low (until it retests the MA). Only difference would be in price range, which going to be significantly tighter, than previously (2450-2680). There will be no crucial macroeconomical announcement from America until Thursday (GDP advance). Friday will bring ever-volatility-causing non-farm payrolls data, so unless you are a position trader playing higher timeframes, I would not advice to get involved in the market before the news, because it would be pure gambling.

As you can see on the intraday chart, the futures discounted all bearish sentiment overnight (rules from America) and opened near lower band of Wednesday's window. It was actually the last of selling we had seen that day. Three downside spikes (bear traps), that you can see near the gap level sucked in some remaining sidelined money and prepared the market for upside action. My only concern for not being bullish on Monday is that the market moved parabolically, which often is a good indicator, that it is time to sell. Moreover, Friday was an outside range day, which also is commonly considered as a reversal pattern. On the other hand, the futures keep making new highs, showing some strength and we did not actually see a top formation yet, so only danger here, that would instantly reverse the market is an event of low probability (surprising the crowd). The States moved sideways on Friday, but managed to establish a solid intraday support and bouced off of it. Thus my stance for Monday is bullish, unless the market opens above previous day's highs (above 2650), which would destroy the whole picture.