10/08/2008

Futures analysis

The market says "no" and we have to wait a little longer, in order to see eventual extension beyond 2800 level. In fact it has not been retested yet, which might indicate, that the futures are not strong enough yet to go that far to the upside. So far, we have seen a 3-day decline caused mostly by negative sentiment related to earnings report season. The longer term pullback ended up finding resistance area between 50- and 100-day moving averages, but did not violate itself enough, to say that we have a continuation of the whole bear market. Wednesday's window (shown on intraday chart) did not hold as a support and was finally broken on Thursday. Though, the futures ended up posting a reversal bar (doji) exactly at rising 20-day moving average, so it might be a pullback within a pullback, which may lead to another test of current month's highs. Upcoming week will bring us some data from the U.S., which will cover housing market, retail sales and monthly CPI. This is going to influence the Dollar, which is already strengthening. Fed Funds rate is so far expected to remain at 2% throughout October, which is rather bullish for american currency. More bull market in Dollar means bull market with little delay in stock markets.

As you can see on the intraday chart, the futures only managed to retest a high of 31st of July, but were not strong enough to post a sustained move above it. This is a classic souble top pattern, which started this recent 3-day sharp decline. Wednesday's window was tested twice until price managed to break through. It has become a resistance level and the futures have to get above it again, if we are to see further upside action. Market is range-bound again, this time between 2600-05 and 2665 area - the most significant intraday support and resistance for upcoming week. Remember, that lower range band corresponds with rising 20-day moving average, so any emergency support level remains only near 2570, if current is broken. Breaking below 2570 means going down to 2450 again. Watch intermarket action carefully now, as we have newly established patterns in daily timeframe. Crude Oil showed weakness, which can lead it back to 100$/barrel and EUR/USD posted a double top, that was the main cause for establishing a new trend supporting Dollar. I think we are seeing the last of subprime writedowns. Now we have to concentrate on economic slowdown, which is coming to Europe (Spain so far).

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.

03/08/2008

Futures analysis

The futures posted an inside bar doji on Friday, which in conjunction with previous patterns indicates, that our pullback encountered heavy resistance and is about to reverse. If price forms an inside bar, that usually means trend reversal, so the odds of the futures getting back to major downtrend have significantly increased. Moreover, we had a volume climax on Thursday (highest since April), after U.S. GDP data, which happened to come along with declining open interest (position closing). I fear, that the most recent price action, that took place above January low level (2680) is going to evolve into a bull trap. Although the market found resistance between two declining long term moving averages, it did not fill Wednesday's upside window from the last week, so technically there is still some room to find support above 2680 and extend the pullback a little bit. As for our short and mid term catalysts, the U.S. labor market data along with GDP advance appeared to be worse than expected, which again brought concerns on contracting economy and inflation. Judging recent price action in the futures and adding the news, I can say, that it is a good time for returning to bear market.

If you look at the intraday chart, you will see that, Thursday's resistance has extended to a 10-point area between 2750 and 2760. Nonfarm payrolls did not cause usual volatility this time and the market moved sideways for pretty much the whole session (one of potential scenarios from Thursday's analysis). Current price range between 2710 and 2750-60 will now act as pivotal area for the upcoming week. Thus, now we should start looking for potential breakouts either way, which will confirm future movement. Breaking below the range will mean retesting Wednesday's window, that is our emergency support. On the other hand, if we are yet to see any upside action, then the market has to make a sustained move above 2750-60 area and possibly confirm it as a support immediately. We have one more day to see about that, because on Tuesday, the Fed will decide what to do with interest rates. The highest odds are for leaving Fed Funds at current level of 2%, which means that there are still inflationary concerns and no one wants to hurt already slowing economy further. Judging by the most recent price action in the futures, we can assume, that interest rate sentiment has been already discounted by the markets. Meaning, that sharp Thursday top, along with range contraction on Friday have already shown whole anticipation. American indexes also moved sideways before weekend, so my stance for Monday is neutral, as the markets will probably wait on the next significant catalyst.

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.

29/07/2008

Futures analysis

The pullback has slowed down, but managed to stay relatively intact after some overnight sentiment catalysts, that stopped out just minor traders. As you can see on the daily chart, the futures are nearing declining 50-day moving average, which is now corresponding with January low of 2680, creating much stronger potential resistance. Given current market sentiment, this level could be tested tomorrow, because of as little as 20-point gap, that separates the closing price from this area. Tomorrow starts the news streak, which will setup sentiment for the next week. First comes ADP nonfarm employment change, which is slightly less considered sister of actual nonfarm payroll announcement. Then, late in the day, we will learn about Crude Oil inventories, that will influence intermarket action (having in mind oversold Oil futures). Unfortunately for Warsaw Stock Exchange, it is coming out after the closing bell, so any drastic change in sentiment would probably result in an overnight gap next day.

Intraday chart shows, that the futures are struggling to make new highs, although price does not move sideways much. Recent movement has been volatile, which is caused by betting before important news (this explains rapidly changing sentiment and gaps). Today's session was bearish overnight again (just as Monday), turned to strong bullish just after the open but barely made a new high before closing. January low is just 20 points away and completes a resistance area along with the most recent level of 2660. Given today's action in the U.S., my stance for tomorrow is naturally bullish, at least for morning part of the session, before announcements come out. The States posted a strong uptrend, that did not show a reversal pattern before the close, so I would even expect an upside gap on the open here. If the gap exceeds 2680, then look of the price to find support in this area at least to 2660. If it does not prove as a significant level, then the market could have some trouble breaking above it in the future. Remember, that the best confirmations occur when markets post sustained moves (pure volume-backed price action; no windows). If price manages to stay above 2680, then the pullback could extend to even 2800 in the intermediate term.

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.

24/07/2008

Futures analysis

The futures slowed down today, one day after posting continuation gap. Two last candles align in a pattern, which is called 'dark cloud cover' and is commonly known as a stall/reversal formation, suggesting a possibility to close overnight window from Wednesday. Such occurrence should not surprise anyone. The futures managed to post a five-day rally after downside exhaustion, and now there is room to resolve current situation without sharp, emotional and volatile moves. Yesterday I feared, that housing data from the States might act as a short term bearish catalyst, but I did not expect it to break current price formation. This brings up important points to note: Friday will be crucial, because the market is going to penetrate Wednesday's gap level A sustained move below the gap area will indicate, that retest of 2680 will be much delayed in time and if the market becomes weaker after that, then we will see retest of 2450 first Tomorrow will only bring us data covering new home sales in the U.S., but the news comes out at 16:00 CET, so it will be near the end of trading session (sentiment for Monday).

Intraday chart shows, that the futures broke rising trendline, that I plotted yesterday. We are out of the main short term trend, so from now on we have to pay attention to support areas, which are certainly going to be retested. Outcome of these retests will tell us, if current pullback in daily timeframe is going to extend or reverse early. Firstly, the gap level between 2580 and 2600 will definitely play a crucial role tomorrow, as it has already been touched by the market minutes before the close. Below this area, there could be a potential support near 2550, which is represented by intraday swing lows (emergency short term support). If the daily pullback is ought to continue, I would like to see the market not testing 2580 from the downside with confirmation. This is because such occurrence would lead to a trend change, meaning early termination of our current correction. In the wake of american stock market's close, it will be really hard task for the futures to remain above the whole window level, unless something happens overnight. The States posted a decline backed by momentum, which did not change even late in the day. According to my rules, if there is a trend before the closing bell, it is likely to continue on the next day and in this particular case (given the magnitude of downtrend), there is possibility of a downside gap in the morning. Resistance levels for tomorrow are: 2620 and 2645, gap level is the main support and emergency area lies near 2550.