31/07/2008

Futures analysis

The futures managed to get above January low level of 2680, which happened on rather heavy volume. Wednesday appeared to be very bullish and kept positive sentiment, caused by short term catalyst - early ADP nonfarm payrolls publication. Now that today's news showed, that american economy missed its growth forecast, the volume became even heavier and today's session closed posting a hanging man pattern. This recent price action combined with earlier euphorical buying might indicate, that we are in the middle of a bull trap, which could eventually put an end to current corrective wave. Last time I stated, that if the futures break above January low, then the next upside target will be 2800, now corresponding with declining 100-day moving average. Tomorrow comes out the Labor Department's nonfarm payrolls news, so volatility will probably strike again. Tomorrow's post-news sentiment has to confirm today's selloff, if the market is to terminate the pullback right away. Otherwise, better-than-expected employment data will keep the price in current resistance area, up to 2800.

After continuation pattern on Wednesday (gap and the whole intraday trend), today's price action went mostly sideways, which indicated, that the futures were near an exhaustion level. Late day news on economic growth in America caused a sharp selloff, backed by huge volume. The market managed to recover a bit just minutes before closing, but as you can see on the intraday chart, it was a corrective wave, that found resistance at 2750 (earlier a support level and Wednesday's last hour high before closing). Now, the futures have become range-bound between 2710 and 2750, which will be our pivotal area for the next session, in case that futures change the trend to downside definitely. Staying above the upper level might still revive chances for 2800 retest. On the other hand, if the market breaks down through 2710, the nearest potential support is Wednesday's window of 2665-85. If we take the selloff leg, then add it to last hour's pullback high, then price target appears just at the window level, so it would be a classic 1:1 measured move. The States remained in a downtrend and did not change sentiment before closing, so my stance for tomorrow is bearish. Though, as it has been proven by recent examples, the market could already discount everything overnight and post another downside gap. If a downside gap occurs in the morning, then any bullish price action will be driven by positive expectations on nonfarm payrolls.