Editor's note: this column was originally published on Capital Essence's CEM News on September 17, 2007. It's being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Wednesday September 19, 2007.
We've offered in our September 17 Market Outlook that "a 50 basis point cut is likely to encourage a fresh round of buying" stocks rose sharply Tuesday afternoon with the Dow gained about 300 points immediately followed the Federal Reserve's announcement to cut the fed funds rate by a half-point, around 2:15 pm ET.
As a matter of fact, today trading action was very consistent to what we've noted in the September 13 and 18 "Cubes Speculator Bulletin" – "September 12 buy signal could be a beginning of the third buying wave - started from August 16's low…the decline [over the past 3 sessions] is simply a "rally" in the making" – the NASDAQ-100 Index ETF (QQQQ) jumped +2.52% today.
The rate cut decision stoked some inflation concerns and helped drive up commodities prices.
Spot gold is positioned to test the '06 high. As mentioned, a bullish breakout above this level will spark an intermediate-term rally that will propel prices into the 800 level.
Crude oil had moved into the "no-man-land" [uncharted territory] followed the rate cut announcement. This is bullish. Next stop: $90.
Let's take a look at the major index charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. The board market index broke out above the one-month old pennant. This is, of course, bullish. As mentioned, today's upside breakout will set the bullish tone for the rest of the month and hence, setting the stage for a test of July's high.
The Dow Jones Industrials Average (daily) chart above addresses a short-term time frame. Similar to the S&P 500, the blue-chip index had also broke out from a mini-pennant and is testing resistant at August's high. As mentioned, an advance to above this will set the stage for a retest of July's high. An upside follow-through will confirm this.
Bottom line: as noted above, today's FED induced rally had set the stage for a test of July's high. Although market might take some time to digest today's huge gain. With that said, expect prices to move sideway with a positive bias tomorrow.
(By：Michelle Mai for Capital Essence)
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.
