Editor's note: this column was originally published on Capital Essence's CEM News on September 12, 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 Thursday September 13, 2007.
As predicted right here in the previous Market Outlook: "Tuesday rally is definitely refreshing, though, we'd caution against reading too much into the rally…until proven otherwise, trading range remains the name of the game" – equity market close around the flat-line Wednesday.
Energy (XOI, +0.69%) was a shinny spot today. The sector jumped in conjunction with crude oil prices – the November delivery gained $1.54 to $79.77 per barrel after the government reported that oil inventories fell 7.01 million barrels in the latest week. Analysts had been expecting a drawdown of only 2.7 million barrels.
The oil service (OSX) rose about 5% immediately followed our bullish comment on the sector. And we continue to believe that energy will be a relative secular winner in a long run.
Technology (SOX, -1.94%) ended the session at the worst-level of the day amid a disappointing third quarter updates from Texas Instruments (TXN, -1.68%).
Technically speaking, a breakdown to below support at the one rising trendline indicates a retest of August 16's low. Bear in mind that a failure to hold above August's low will pressure the entire tech universe. In speaking of tech stocks, we've opined in the September 12 "Cubes Speculation Bulletin" around 1 PM ET that "QQQQ seems to be ready for a pullback. A failure to take out today's high @ $49.37 in about an hour or so will confirm this. Expect a retest of today's low around $48.80. The downside trigger would be a decline to below $49.10." Just so that you know, after an initial break down below $49.10 around 3 PM ET, the NASDAQ-100 ETF (QQQQ) followed through to the downside and hit as low as $48.87. Any downside put option traded could have made, at least 20% in less than an hour.
Let's take a look at the major index charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. As expected, the board market index continues to base sideway beneath the 50-day moving average. The action is, of course, bearish. As mentioned, we'd remain skeptical until or unless the index moves above the 1500 level. Short-term support is around 1439. The index has a layer of resistant that runs from 1470 to 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 settled around the flat-line after an initial test of resistant at the 50-day moving average had caught some selling interests. Expect the index to bounce back and forth within the 13400-13000 trading ranges in a next couple of days.
Bottom line: Wednesday trading actions suggested a negative bias into Thursday session. A decline to below Wednesday's low will confirm this and a test of Monday's low is, therefore, expected.
Until next time, good luck.
(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.
