12/02/2008

Futures analysis

Volatility tries to shift the trend again in the daily timeframe, as today's session confirmed, that the futures have established a higher low and are going to test the March low one more time. It appears, that after the huge decline in the beginning of 2008, the market became deeply oversold and thus, what we have been witnessing recently is a bottoming process, not a continuation pattern obviously. Today's rally occurred on little higher than recent volume, which indicates that the market has breadth and is capable of breaking through the 3125 resistance, to extend corrective wave probably back to the declining 50-day moving average at least. Though, the price still remains below this crucial resistance area, so we have to wait for a confirmation of eventual upward action (sustained move above 3125). Today's catalyst, that caused such euphorical buying, was Berkshire's bid for municipal bonds guaranteed by troubled MBIA. Traders' bet was, that such move from a big player will help stem credit losses.

Yesterday I stated, that late in the trading session, the short term trend was put to a test, because of double top pattern posted by the futures (with no corresponding higher lows). The market gapped up in the morning, which shifted the whole situation again in favor of the bulls, keeping the price above rising 100-period moving average for the rest of the day. The futures firstly broke through 3005 resistance, which was the closest upside target for today and then got passed by 3060, which I mark as the nearest support level for tommorrow and upcoming days. As you can see on the intraday chart, there is still little room for this market to reach 3125, which will probably by touched tommorrow, as american indexes gained about a half percent on the close (bulls have support). The open interest was declining throughout the whole session, so today's rally was a typical short squeeze. Watch 3125 closely, to avoid any bull traps, as new money has to come in and support further uptrend.

11/02/2008

Futures analysis

An upside spike at declining short term moving averages was posted today by WIG20 futures in the daily timeframe. Today's bar is not actually a hammer, but its form indicates more selling force coming into this market. Price action however is still taking place above major 50% Fibonacci retracement of current rally, meaning that eventual retest of January low (2680) will occur much slower, that I initially expected. This week is going to bring important data, covering retail sales and industrial production in the United States, on which traders will gauge condition of american economy. Nonetheless, in the short term these announcements act as psychological catalysts, that always influence the stock markets, often rejecting technical price patterns.

5-minute chart shows, that friday's decline of american indexes did not significantly influence today's open in WIG20 futures, as the market opened with only 30-point downside gap and remained in an uptrend for the most part of the session. The futures exceeded the last swing high near 38,2% Fibonacci retracement of the previous decline (plotted on the chart) and continued to rally above 2980 until 50% retracement, which corresponded with 3005 (prior level of support and resistance). Price action just minutes before the close shows that, the short term uptrend began to shift, as the futures posted a double rising top with no corresponding higher lows. However, market closed near 38,2% Fibonacci retracement, leaving room for any upside action, that may take place tommorrow in the morning, as american indexes closed slightly positive today. Upside target remains at 3005, as the intraday high and downside targets are: 2900 (previous swing low; outlined in previous analysis) and then 2860 (local minimum).

08/02/2008

Futures analysis

Today's session posted an inside doji bar with a higher than previous low for the day. It is also second in a row downside spike near the crucial support level, which is 2860. Theoretically such price pattern should indicate a reversal of current decline, but in the wake of declining american indexes, it will probably be rejected on monday. WIG20 futures had volatile end of the week, but still managed to remain inside current price range between 2860 and 3125. Volatility entered again, as in the morning, european stocks advanced on gains in commodity producers, but in the second half of the trading session, markets declined, as american stock market fell on credit losses concern. Nonetheless, technically the main downtrend will continue when futures break down through 2860 support, at least until 2680, which is the most recent daily low.

Friday started off with posting a short rally, which quickly ended up as a bull trap by returning back below the moving averages. The first half of today's session was basically an ABC correction of previous day's upswing and after finally establishing a low at 2875, the futures went back and posted almost exactly mirrored pattern to the upside. Three-leg rally shifted intraday trend again, forming somewhat an inverted head and shoulders with a rising neckline. I outlined only the nearest support and resistance levels, as they appear to be the most crucial for possible short term price action. 2955 is prior swing high and will probably be tested on monday, even having the States 1% below yesterday's close. 2902 is today's swing low of the last rally before the close. Moreover, it corresponds with all of the moving averages as a turning point, that shifted the trend today, so anticipate further declines below that.

07/02/2008

Futures analysis

Today's session posted a candle, that retested prior support level of 3860 in the daily timeframe. It is not an actual hammer, nonetheless produced a downside spike, as a result of buying, that occurred late in the day. This is only a confirmation of particular support/resistance area, but need not indicate a trend reversal already (explained in the intraday section). Still, we have another decline building up on rising volume. Open interest has finally moved to a new high, which may imply, that new short positions are being opened. Recent price action has been constantly showing typical setups for entry in terms of swing trading. We had this long, very extended downside leg, followed by a low volume rally and now, as the market declines again, trading starts to become more active here. Though, as long as current support (3860) remains intact, the futures will be range-bound for a longer period and may produce more complex pattern before the next move.

Thursdays are often accompanied by volatility and as you can see on the intraday chart, the futures posted a sharp decline just after noon. Here, you can also see, why I did not qualify today's action as a trend reversal. The longest, 100-perdiod moving average, became resistance after the futures recovered from 2860. It obviously means, that the short term trend is down and as long as the price remains under this MA, there is going to be no reason to get long here anyhow, unless you want to play against the current. American index futures closed on break even actually, as rallying financial stocks balanced with earnings forecasts cutting retailers. The odds for an overnight gap have been slightly reduced. If 2940 holds as resistance, then we would probably see a retest of yesterday's low (2884) and if that fails, then today's low of 2860.

06/02/2008

Futures analysis

The futures are falling down after retesting the March low on monday. The market gapped down in the morning as a result of negative close in the States yesterday and finished just only half percent above previous close. Today's low is also prior resistance level of 2885, which was tested in late January, during the panicky selloff. Low volume pullback, that recently took place is getting confirmed daily as a natural continuation pattern in current long term downtrend. If 2885 support is broken, then the nearest downside target in the daily timeframe would appear to be 2680 low that was established on 22nd of January. The U.S. companies are cutting profit forecasts, confirming earlier concerns about recession, so the stock markets are returning to downtrends. I do not think, that further rate cuts will change market's opinion on what is going on in any way. Weakening Dollar will be inflicting pain to the stock market by causing inflationary pressures.

Two days ago I stated, that if the 3050-70 support area fails to hold, then you would start to pay attention to the next nearest downside targets - 3030, 3000 and 2930. Yesterday, the futures opened at the upper support area band - 3070 and then posted only a flat corrective pattern, which eventually led to a sharp decline late in the day. This whole downside action was caused by poor macroeconomical data from the U.S., again spurring recession concerns. As you can see on the intraday chart, such important psychological catalysts often cause rapid emotional reactions in the markets, which in case of WIG20 futures resulted in rejecting all of previously mentioned potential support levels. The whole decline ended up today in the morning, as the futures posted a downside gap, falling into previous support/resistance area between 2885 and 2910. As a result of such a sharp downside move, the market quickly became oversold, so today's session was in an uptrend all the way to the close, entirely filling overnight gap. American indexes closed nearly 0,50% to the downside and that puts me into pretty much neutral/bearish stance for tommorrow.

04/02/2008

Futures analysis

Just as expected, the futures have retested the level of March low, which corresponds with 50% Fibonacci retracement of just one last leg in current downtrend. The market gapped up again, creating potential of more upside action, but eventually ended up posting an upward spike and declined late in the day. Price is currently above previously mentioned key resistance, corresponding with 38,2% retracement of the same downswing, so the rules for an extended pullback apply nonetheless. Now, in the upcoming days, price action will determine, whether it is a sustained move or not. Apparently, today's daily candle does not show any momentum, that would already ensure extension, as there was significantly lower trading activity, than in previous couple of days. The volume has been constantly diminishing throughout the whole rally, regardless of Fed actions. Open interest has flattened and pretty much has not gone anywhere, since the beginning of the correction. Such alignment theoretically indicates, that the market has no breadth and thus, that the pullback will not go further above the March low. However, price is the only thing that pays, so we could even see the futures going up on reversal candles again (as in October).

5-minute timeframe shows, that the March low level was tested three times today, but it eventually led to a failure and short term trend change. Decline, that took place late in the day found support at prior resistance area, particularly its upper band of 3070. If the States close negatively, then I would expect more pressure to the downside tommorrow, especially in the morning (possible overnight gaps). If the whole 3050-70 zone fails as a support, then the nearest downside target would be 3030, which is also prior support/resistance level and apparently the last swing low. Watch this 3030 level closely, to gauge price momentum in case of a breakthrough, because this will determine odds for retesting other potential downside levels - 3000 and then 2930.

01/02/2008

Futures analysis

The futures are still wandering inside the main short term resistance zone, which lies between 3030 and 3070. Moreover, the price pulled back to the declining 20-day moving average, so now this whole area is of more significance and has become important turning point. We are closing to retest the March low, that lies just 30 points above today's high, which is naturally another potential resistance. My view remains as before: a sustained price action above current resistance (3070) will give reason for eventual short term long entry here. By 'sustained' I mean staying above for at least three or four days, in order to determine actual price pattern. The futures are still coming back from a deeply oversold range, accompanied by great volatility, which generates many false signals. More interest rate cuts are also expected. This is pure psychological catalyst and another cause of such volatile actions.

As you can see on the intraday chart, the futures gapped up in the morning as a result of american indexes' positive close. Short term trend shifted yet again, but even at the end of the day, price remained basically still at upper band of the channel, that I pointed out yesterday. The first large volume rally was caused by Microsoft bidding for Yahoo, but then the market quickly pulled back and basically just marked time until the States have opened. These rapid spikes are the volatility, that I was talking about. If you want to play this long, you must accept bigger risk and most importantly, not to blindly trust the market, that breaking above certain levels is going to maintain momentum. The market does come back, especially when in the middle of a bearish trend correction, when volatility is significantly higher than in uptrends. Another part of today's rally spikes was announcement of the Nonfarm Payrolls. America is losing jobs and this is spurring more concerns about whether the economy will fall into recession or not. Further rate cuts with fiscal stimulus will cause more inflationary pressures, hurting the stock markets.