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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Wednesday August 22, 2007.
We've opined in our previous Market Outlook that "Monday trading action suggested a negative bias into Tuesday trading session", equity market closed slightly lower Tuesday with the Dow lost 30 points to 13090.
Overall it was a very mix day as an early attempt to pull the tape up was cancelled out by the aggressive selling in the energy stocks. Although, as a matter of fact, Tuesday trading action was pretty consistent with what we've predicted in the previous "Cubes Speculator Bulletin" – "Market breadth remains positive and seems to be supporting a positive closing. Price appears to be consolidating before a leg higher" – the NASDAQ 100 Index ETF (QQQQ) closed up 51 cents or 1.14% for the day. The recent recommended holding, QQQIS (September 45 Call Option) is carrying an amazing unrealized gains of more than 50%.
Although, it worth notice that the financial stocks had refused to go down in the face of some bearish news [Richmond Fed President Lacker said market volatility does not warrant Fed rate cut] that would have roiled them in recent weeks was an encouraging sign that suggests these stocks are stabilizing.
(Click on image to enlarge)
As you can see, the Bank Index (BKX) is testing the water at the "previous-support-now-resistant" area. At this stage, odds for an upside breakout is still …slim-to-none. Although, it seems to us that, the urgency to sell had also been diminishing, and, the downside risk is, therefore, limited.
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. The index continues to trade below the 200-day moving average as resistant. As mentioned, a failure to take out this level will increase the probability for a retest of last week's low, around 1370. A close below 1439 will confirm this.
(Click on image to enlarge)
The Dow Jones Industrials Average (daily) chart above addresses a short-term frame. The blue chips index continues to trade below the bearish "Head-Shoulder" pattern's neckline as resistant. And this is not good. As mentioned, a failure to take out resistant at this level suggests that recent low, around 12500, will be retested and exceeded. A close below 13050 will confirm this.
Bottom line: Tuesday trading action suggested that, more likely than not, we're going to have a wild mid-week reversal tomorrow. A decline to below today's low will confirm this.
