05/08/2008

Futures analysis

The pullback managed to stay above two important technical factors - rising 10-day moving average and Wednesday's window (30th of July). It appears, that sentiment on the Dollar has changed in the longer term (probably until December), which is currently the main catalyst fueling rallies in global stock markets. Crude Oil did not hold its crucial support near 122$/barrel, so it might provide another clue, that the markets are probably going to forget about recession in America and focus on upcoming interest rate movement. Today, the FOMC announced, that Fed Funds rate will remain at 2% and it is expected to stay at this level even through October, which is going to be rather supportive for the Dollar. As for WIG20 futures, the key levels of resistance are yet to be tested. The most important short term level, that might be tested in the next few days is of course declining 100-day moving average, which is curently in alignment with swing lows from April. I thought the whole correction, that took place in daily timeframe was about to exhaust itself just after posting upside gap on Wednesday last week. It was a good place to form a bull trap, but eventually, as you can see, it turned out to be a continuation pattern. The most important factor from now on is sentiment on U.S. Dollar, because it will determine, whether the stock markets are capable of changing trends until the end of this year or not.

5-minute timeframe shows that, the price extended its range to 2690-2770, confirming Wednesday's window level as a support. Now that the futures closed just under weekly highs, it will be obvious to expect a sustained breakout, if we are to continue current daily retracement. Given current sentiment, that came from America after the closing bell, WIG20 futures are likely to post an upside gap in the morning, which could exhaust any potential upside movement for the rest of the day (especially if gap reaches our daily target near 2800 area). Tomorrow will bring us crude inventories data, that always acts as a strong catalyst. Expectations are for increase, which naturally works against the Oil price, giving stock markets some room on the upside. My stance for tomorrow is bullish, with target at 2800 resistance zone. Watch the market, when it enters this area, because if it eventually posts a sustained move above it (in next couple of weeks), then we could start thinking about potential bottoming out and ending of the bear market at least until the end of this year. The only factor to support this stance is rate-hike sentiment on the Dollar.