Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Wednesday August 01, 2007.
We’ve noted right here in the previous Market Outlook that “Monday rebound is the beginning of the long awaited oversold bounce. And you might want to enjoy it while it last for the market could turn very ugly should the rally loose steam right below key resistant” – see “Enjoy the rally while it lasts” July 31, 2007; equity market opened sharply higher Tuesday with the S&P gained as much as 10 points in the morning session. Those ill-fated gains were, however, got wipe out in a blink of an eye shortly after the rally ran out breadth right below the key resistant at the 1490 level. The board market index closed 20 points lower or about 1.3% to 1453.
Overall, it was a challenging day on the Street, as well as our “Swing Trader Bulletin”. Although, the end results weren’t that bad. In fact, Vcg Holding Corp. (PTT) profiled on Monday evening as a potential buy rose more than 15% to $7. Accuray Inc (ARAY) also profiled on Monday evening as a potential buy rose 0.64% % to $18.91. Advent Software Inc (ADVS) added on to previous gains, up almost 2% on the day to $38.03.
Let’s take a look at the major indices:
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. As expected, the index closed significantly lower after the rally into the 1490 level was greeted by sellers. This is, of course, bearish. However, until or unless the bears manage to take out the double support (the 200-day moving average and early spring bullish breakout) around today’s low, the near-term downside risk is limited. Support is about 1450. Resistant is about 1490.
The NASDAQ Composite Index (daily) chart above addresses a short-term frame. Similar to the S&P, the tech rich index is also eyeing support at the early spring bullish breakout, about 2500. Keep an eye on it for a breakdown to below this level will have a very bearish implication on the board market. Support is about 2500. Resistant is about 2600.
In speaking of tech, the “Cubes Speculator Bulletin” readers had been warned about today’s decline in the Monday evening update – “expect the rally to carry into the $49 area. Bear in mind that a failure to take out this level will resume the decline” – after the strong bounce that brought the NASDAQ-100 Index ETF (QQQQ) to as high as $48.99, the ETF had made a quick reversal around noon and slide its way lower into the closing bell. The QQQQ lost about 1 point, or 2%, to $47.53. Any put options traded could have posted triple digits gain today.
Bottom line: the magnitude of Tuesday’s last hour decline suggests that the market might have reached a short-term seller capitulation and hence, increased the probability for a mid-week bullish reversal. However, bear in mind that the primary trend will roll over if the market refuses to bounce from such a negative condition. With that said, we could be entering a bear market from here.
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.
