Editor's note: this column was originally published on Capital Essence's CEM News on October 08, 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 Tuesday October 09, 2007 .
As predicted, stocks gave back a fraction of last week's sizeable gains Monday amid a stronger Dollar with both of the Dow and S&P 500 Index lost about -0.32% and -0.16% respectively. General speaking, what's good for the greenback [US Dollar] is bad for stocks, especially blue-chips stocks, and vice-versa. This has been a proxy for this 4 years old bull market. And it should be on your trading radar.
It worth notice that the Dollar moved higher, up 0.59% to 78.77, immediately followed our bullish comment on the currency.
Apparently, the Dollar is heading toward the short-term resistant at the two-month falling trendline. With all the shorts piled in, we could face a mother of all bear squeezes if the Dollar manages to breakout decisively above this level. Short-term support is about 77.
Let's take a look at the major indices:
The S&P 500 Index (daily) chart above addresses a short-term time frame. Monday's trading action neither confirmed a near-term peak nor resembled a bullish congestion pattern [ahead of another leg higher] on the heel of last Friday's bullish breakout. This high-level churn, however, often precedes a correction, which could be in time (i.e., sideway consolidation) or in price. Support is about 1500.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. The blue-chips index continues to base sideway near high. As mentioned, the bulls shouldn't be worried as long as the index holds above support at the 13700 level.
Bottom line: Monday trading action suggested a positive bias for Tuesday trading session though this is conditioned to the lower dollar. With that said, expect a large scale sell-off if the Dollar takes out the 79 level.
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.
