21/08/2008

Futures analysis

Inflation hit the markets again and we had a breakdown after a one-week consolidation in WIG20 futures. Although the Dollar has reversed trend along with Crude Oil, we still have to wait through all these negative macroeconomical reports, that are actually delayed results of what happened beforehand. 2600 support area did not hold, so we are back in the main downtrend. Retesting 2450 is unavoidable, as there are no significant price swing lows or highs along the way in daily timeframe. Commodities are currently recovering after hitting important support levels, so there we have some writedown-recession sentiment fueling these markets. It is a typical situation, when technicals discount things before they actually happen. After reaching support in Crude and resistance in Dollar, a couple days later Poland agrees to sign a missile-shield agreement with USA and suddenly we are seeing market's concern on Georgia's situation. So far, technicals say, that WIG20 futures are going to retest 2450 area first, before the price would bounce back to its recent daily swing high. Sentiment for the Dollar did not change - 2% Fed Funds throughout September and October (highest implied probability). The only thing, that would influence people betting for recession is increasing interest for Japanese Yen (I will try to post its forward curve soon).

Intraday chart shows, that the futures have managed to rebound from 2537-42 area, after making a 1:1 measured move from 2780 highs. Now, the price is forming a rounded bottom pattern accompanied with higher volume and stalled (but rebounding) open interest. The States formed an uptrend today, which did not change its direction, so the odds for a continuation are grater than for reversal. As you can see, the price of WIG20 future has already discounted some positive sentiment, so we are probably about to enter 2575-600 area. This is the most important level now, as it has a 'pivotal' status, meaning that if the price goes either way from there, it will indicate which way is the actual short term trend going. The rules are simple now. Watch the price action inside 2575-600 area and look for particular patterns, in order to spot weakness or strength in this market. If it touches the upper band of 2600 and forms a flag just below, that would indicate, that there is potential to go further upwards. One-time retests with sharp or double tops will not forecast anything good for the bulls. My stance for tomorrow is neutral/bullish. Neutral, because we are range-bound again (between 2537-42 and 2575-600) and bullish is due to slight positive sentiment coming from the U.S.