Editor's note: this column was originally published on Capital Essence's CEM News on September 4, 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 05, 2007.
Equity market extend Friday's relief rally and close higher Tuesday. Of the 10 economic sectors trading higher, Energy (OSX, +2.71%) led the charge as crude for closed above the $75 mark for the first time on a month following updated hurricane forecasts.
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As expected, the PHLX Oil Service Sector Index (OSX) is heading for a test of the July's high (see the OSX chart above). As a matter of fact, the sector had jumped more than 5% since our bullish comment. As mentioned, a sustain breakout above the July's high will increase the probability for a test of the 300 level.
It worth notice that the NASDAQ outperformed its blue-chip counterparts and logging its best four-day advance since November 2003, surge 1.6% for the day. In speaking of tech stocks, as discussed in our previous "Cubes Speculator Bulletin" – "QQQQ is testing resistant at the inverted bullish Head-Shoulder pattern's neckline, which is printed very clearly on the Breadth Indicator. Technically speaking, a sustain breakout above this level will increase the probability for a test of July's high. As far as the breadth indicator concerns, the probability for a bullish breakout is as high as 70% … [expect the QQQQ to test the $50 mark]."
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As you can see, the NASDAQ 100 ETF (QQQQ) broke out decisively Tuesday and tested the expected $50 level. The recent call option setup locked in an amazing triple digit gain today.
Let's take a look at the major index charts:
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The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. The board market index is testing the "double-resistant" at the area of the 50-day moving average and the three-month lateral trend-line. At this moment, it's impossible to know whether the index can take out this resistant or not. Although a failure to push prices above this level will increase the probability for a retest of support at Augusts' low. The index has a layer of support that runs from 1430 to 1370. Short-term resistant is at August 08's high, about 1504. As mentioned, a sustain breakout above this level will propel prices into the area of key overhead resistant at July's high, about 1555.
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The Dow Jones Industrials Average (daily) chart above addresses a short-term time frame. Similar to the S&P 500 Index, the blue-chips index had slammed into resistant at the area of the 50-day moving average. As noted above, this is a critical test because a failure to take out this level suggests that the secondary correction, that started on mid-July, has a leg, and hence, increases the chance for a retest of August' low. Key support is at August 16's low, about 12500. Short-term resistant is at August 08's high, about 13700. As mentioned, a sustain breakout above this level will propel prices into the area of key overhead resistant at July's high, about 14K.
Bottom line: as far as the chart concerns, stocks look vulnerable for a fresh round of profit taking, which could take place as soon as tomorrow.
Until next time, good luck.
By: Michelle Mai
