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 Thursday July 19, 2007.
As predicted in our previous Market Outlook, “the rally that starts last Thursday is due for a correction, which could start as soon as tomorrow” – see “Watch out for a correction” July 18, 2007; equity market had made a sharp reversal Wednesday – the day after the Dow hit the 14K milestone. A renewed wave of buying interest late in the session, however, gave the major averages a significant boost. The Dow was down as much as 148 points but managed to reclaim almost 100 points within the final 30 minutes of trading. As a matter of fact, Wednesday trading action was pretty consistent with our “market is bullish by default” notion” – “the market is bullish by default as long as the S&P holds above the 1540 level. And we’re, therefore, viewed this pull back as a buying opportunity”.
Financial stocks took a long dive Wednesday with Goldman Sachs (GS) – the only stock that matters to the Street, of course – down more than 2% right after our bearish discussion on the sector – see “Watch out for a correction” July 18, 2007. As usual, follow through is the key. So keep an eye on the stock and the sector as well. Remember this “as goes the bank, so goes the tape.”
Let’s take a look at the major index charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. As expected, the board market index had successfully tested the 1540 level today. This is bullish, of course. Support is around 1540. Resistant is about 1600.
The Dow Jones Industrial Average (daily) chart above addresses a short-term frame. We’ve opined in the previous Market Outlook that “the rally that started last Thursday looked overextended” – see “Watch out for a correction” July 18, 2007; the blue chips index stumble today. Technically speaking, since today decline is happened within a context of a long-term bull trend, there is nothing, yes absolutely nothing, to worry about. Support is about 13690.
Bottom line: at this stage, our gut feeling said that “the upside should be given the benefit of the doubt.” However, as noted above, follow-though is the key. So keep an eye on Wednesday’s low for a breakdown to below this level suggests that today decline could be the beginning of the long anticipated correction. On the other hand, a breakout to above the weekly’s high will resume the recent upleg. In short, keep a close eye on the tape.
Until next time, good luck.
