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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Tuesday August 28, 2007.
As predicted, equity market closed lower across the board amid a fresh round of profit taking. Contributed to the overall weaknesses was a troubling housing report. The unsold single-family homes inventory rose 2.2% to 3.85 million, which represents 9.2 months supply. That's the highest level since October 1991, suggesting that housing sector might be far from stabilizing.
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As far as the chart concerns, the housing sector is having trouble finding buyers at the area of the three-year trend-line support, which is very bad. Bear in mind that a sustain decline to below last week's low indicates a retest of the early '03 bullish breakout point, around 120. And that is about 50 points or 30% from here.
Let's take a look at the major index charts:
(Click on image to enlarge)
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. We've opined right here in last week Market Outlook that "the rally is likely to run out of steam around the 1475 area" – see "The rally still has a leg albeit small one" August 23, 2007; the current advance appears to stall at the area of the four-week falling trendline, around 1475. As mentioned, a failure to take out this resistant indicates a retest of the August 16's low.
(Click on image to enlarge)
The Dow Jones Industrials Average (weekly) chart above addresses an intermediate-term frame. Similar to the S&P 500 Index, the blue-chips index also tested resistant at the area of the four-week falling trendline. Should the textbook stands true, the index will have to move down into the area of August 16's low to find buyers. A decline to below 13200 will confirm this.
Bottom line: Monday's trading action suggested a negative bias into Tuesday trading session. Expect volatility to shoot up into the long weekend.
Until next time, good luck.
