Editor’s Note: The following article was written by Michelle Mai of Capital Essence. It has been reproduced with permission for the benefit of the S.M.R community.
Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Friday July 27, 2007.
Equity market rolled over Thursday with an average lost of 2.0%. A lot of traders, including yours truly, got shocked by the magnitude of today sell-off – the blue-chips index (Dow Jones Industrial Index) was down as much as 449 points (-3.3%) before a “mysterious buyer” stepped in and recouped about 1.0%. There were chatters that the US government, a.k.a. “Plunge Protection Team”, founded by the former US president Ronald Reagan after the ’87 crash, was the master mind behind the late day bounce. If this was true, then we might be able to escape the “black Friday”.
As noted above, the magnitude of Thursday’s decline was shocking though it isn’t unpredictable. Below is one of the charts posted on our Tuesday “Cubes Speculator Bulletin”:
As you can see, our “Cubes Speculator” proprietary trading program had flashed the sell signal on the NASDAQ-100 Index ETF (QQQQ) two days before the plunge. With that said, if you had traded in favor of this system, then you could have taken home a couple hundred percentage gains today on the QQQQ options.
Let’s take a look at the major indices:
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. As you can see, Thursday trading action was very similar to that of the February 27, 2007 in terms of magnitude, market fundamental and sentiment. Although, it’s beyond the scope of this newsletter to discuss these terms. At this stage, all we can say is that the overall technical outlook had taken a turn for the worse after Thursday sell-off; though, the bulls shall prevail as long as the index holds above the 1460 level.
The Dow Jones Industrial Average (daily) chart above addresses a short-term frame. Similar to the S&P 500, the blue-chips index also plunged more than 2% today though yet violated the two-month lateral support about 13200. As mentioned, the bull case remains intact as long as the index holds above this level. Short-term support is about 13200. Short-term resistant is about 14020.
Bottom line: as noted above, Thursday trading action was very similar to that of the February 27, 2007. If history is any guide, then we’d see a rebound tomorrow, which is likely to be followed by a basing or consolidation period, and then…up we go! In short, just like any other “heart breaking” decline in market history, this too shall past!
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.
