Editor's note: this column was originally published on Capital Essence's CEM News on September 13, 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 Friday September 14, 2007.
Equity market rallied Thursday as the dollar hit a new multi-year low. Technically speaking, it was mostly a blue chip affair as a weakening dollar sparked buying interest in multinational companies. Unsurprisingly, the Dow added 133 points or 1% for the day.
It worth notice that stock advanced in the face of a new record high energy price – crude oil closed at $80.09 per barrel on NYMEX Thursday.
The Amex Oil Index (XOI) added on to previous gain, up another percent for the day. It had gained about 6% immediately followed our bullish comment the sector. The index has an overhead resistant around the 61.8% Fibonacci Retracement (see chart). At this moment, it's unknown whether this level can be taken out or not. Although, a sustain breakout above it will increase the probability for a test of July's high, about 1500.
As noted above, Thursday advance was very much a blue chip show. Small-cap and tech stocks were also trading higher, though, trailed well behind their large-cap counterparts.
Speaking of tech, we've noted on the September 13 "Cubes Speculation Bulletin" that: "September 12 buy signal could be a beginning of the third buying wave – starting from August 16's low… QQQQ seems to hang on very well to the $49.15 level. More likely than not, the tape is going to close this way." As a matter of fact, after hitting as high as $49.35 on Thursday afternoon, the NASDAQ-100 ETF (QQQQ) pulled back slightly and settled around the expected $49.15 level.
Let's take a look at the major index charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. Thursday advance had helped to push the board market index above the 50-day moving average. The action is encouraging. An upside follow-through tomorrow, especially if accompany by a move to above the "closely watch" 1500 level, will set the bullish tone for the rest of the month; and hence, increase the probability for a test of July's high. Short-term support is around 1439. Resistant is about 1500.
The Dow Jones Industrials Average (daily) chart above addresses a short-term time frame. Similar to the S&P 500, the blue-chips index had also crossed above the 50-day moving average today. As you can see, there were two similar occasions in which a cross to above this level was met with an even more aggressive wave of selling. With that said, we'd walk into Friday trading session with a bearish bias.
Bottom line: as noted above, the third attempt to cross over the 50-day moving average [as printed on the Dow chart] is likely to be greeted by sellers.
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.
