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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Thursday August 23, 2007.
Equity market closed higher Wednesday as investors cheered the TD Ameritrade and E*Trade merger news. The broker/dealer index (XBD) gained almost 1% on the news.
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Technically speaking, until or unless the index trades above the 200-day moving average, the broker/dealer stocks are dead money! Also notice the bearish 50 and 200-day moving average crossover – this action/behavior is also known as "dead cross".
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 closed above resistant at the 200-day moving average today. This is good. Although, until or unless it manages to take out resistant at the falling trendline we do not expect the rally to run very far, very fast. With that said, the rally is likely to run out of steam around the 1475 area.
(Click on image to enlarge)
The Dow Jones Industrials Average (daily) chart above addresses a short-term frame. Despite the 100 plus points gain today, the blue chips index continues to trade below the area of the bearish "Head-Shoulder" pattern's neckline as resistant. This is not very good. Please also notice the next level of resistant at the area of the falling trendline.
Bottom line: apparently, the upside reward could be limited to the four-week falling trendline. With that said, the rally still has a leg albeit small one. Although, before rushing out to make that trade, a "good" entry point is all that counts.
