Editor's note: this column was originally published on Capital Essence's CEM News on September 11, 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 12, 2007.
Equity market rallied Tuesday with all 10 economic sectors gained more than 1% for the day amid a generalized relief that the FED will cut interest rates in next week's meeting. As expected, gold investors were directly benefited from the specter of the lower rates. Spot gold closed at $712.20 a troy ounce Tuesday, its highest settlement since May 11, 2006, and is just $7.60 away from its 27-year high.
Gold rose for 4 consecutive sessions or about $30 immediately followed our bullish comment. The commodity is now set to challenge key resistant at '06 high, about $730. At this moment it's impossible to know whether this level can be taken out or not. Although, a sustain breakout above this level will spark an intermediate-term bullish move to the $800 level.
As discussed, tech stocks added on the previous gain. The PHLX Semiconductor Sector Index (SOX) gained more than 4 points or +0.82% for the day. As you can see, the index had printed a complex inverse Head-Shoulder pattern on the daily chart. Should the text book stands true, a bullish breakout above the 513 level will trigger an upside acceleration toward July's high, about 550. That's about 10% from where we sit.
Let's take a look at the major index charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. Today's rally had helped to push the board market index to above key resistant at the area of the 200-day moving average. This is bullish, though, we'd caution against reading too much into today's rally. With that said, we'd remain skeptical until or unless the index moves above the closely watch 1500 level. Support is at August 16's low about 1370. 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. Apparently, the blue-chips index is set to challenge key resistant at the 50-day moving average. As mentioned, a sustain breakout above this level suggests a retest of August's high. Support is at August 16's low about 12500. The index has a layer of resistant that runs from 13500 to 14000.
Bottom line: Tuesday rally is definitely refreshing, though, as noted above, we'd caution against reading too much into the rally. To be sure, wait for an upside follow-through. On the same token, if the market goes down tomorrow, then the "August 16 low" will be back in the spot-light. In short, until proven otherwise, trading range remains the name of the game.
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.
