Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Monday July 30, 2007.
Needless to say, last week was definitely a challenging week in the stock market with the major indices posted an average lost of 5% for the week amid a growing concern about the financial melt down.
As you can see, the Bank Index (BKX) is about 9% lower since our bearish discussion on the sector a couple weeks ago – see “Watch-out for a correction” July 18, 2007. Technically speaking, a decline to below last week low indicates that the sector could be entering a secular bear market। And this is exactly what the bears need.
Let’s take a look at the major indices charts:
The Standard & Poors 500 Index (weekly) chart above addresses an intermediate-term frame. Last week decline had bought the board market index back to the area of moving average and early spring bullish breakout support around 1460. As mentioned, the overall technical outlook had taken a turn for the worse after last week sell-off; though, the bulls shall prevail as long as the index holds above this level.
The Dow Jones Industrial Average (weekly) chart above addresses an intermediate-term frame. Unlike the S&P, the blue-chips index still manages to hold support at the two-month trendline support. This is of course encouraging because it could help to lure bargain hunters back to the market once the index stabilizes. Support is about 13200-12700. Resistant is about 14000.
Similar to its peers, last week was also “disaster” for the NASDAQ and hence, tech investors. Although, they could have not only escaped this disaster but also made some money if they’ve used the simple (in term of user friendly) but very precise (in term of predicting power) “Cubes Speculator” proprietary trading program.
As you can see from the above chart, the July 24 signal was triggered and confirmed on the same day – July 26, 2007. This is very important because it had drastically increased the probability success with the trade. And so, on Friday the July 27, the NASDAQ market plunged for the second straight session, down more than 2%. With that said, any option traders could have posted a triple digits gain to their portfolio last week if they were traded in favor of the system.
So what’s next? As far as this system concern, market had reached a short-term oversold and is due for a bounce, which can be taken as a selling opportunity।
Bottom line: there were a number of “bear market” chatters after last week’s sell-off. At this stage, it’s impossible to know whether the bear market has begun, but we think it’s important to pay attention to the financial sector because, as mentioned, “as goes the bank, so goes the tape”.
Until next time, good luck.
Note: Michelle Mai writes technical analysis for Capital Essence and is the editor of Capital Essence’s “Market Outlook” newsletter. To receive the daily edition, please subscribe. It’s now available at a monthly rate.
