Editor's note: this column was originally published on Capital Essence's CEM News on September 29, 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 Monday October 01, 2007.
As expected, stocks finished the third quarter with a bang. Climbing for the third straight week, the Dow added 75, or 0.5%, to 13,896 and is now just 0.7% off its record 14,000 peak. The S&P 500 ticked up a point, or 0.1%, to 1527. The NASDAQ Composite Index rose 30, or 1.1%, to 2702.
Energy market was very volatile last week. Crude oil futures for November delivery traded as high as $83.76 before running into resistance. They closed the session at $81.39 or nearly 3.0% off the intraday high.
As noted above, a move into the $84 level was met by a wave of profit taking. Although the bullish scenario remains intact as long as price holds above the $73 level. And as we've said back in August 27: "energy will be a relative secular winner".
Despite the overall weakness, spot gold jumped 1.23% to $743.30 per troy ounce last Friday.
Apparently, the yellow metal is conducting a testing of the $750 level. At this moment, it's unknown whether this level can be taken out or not. Although a sustain move above it should have the power to fuel a rally into the $800 area by year end.
Clearly, investing in commodities (oil, gold, etc.) had been a profitable strategy. In fact, those who bought oil and/or gold immediately after our bullish comments (see here and here) could have earned at least +20% combine profits.
The Standard & Poors 500 Index (weekly) chart above addresses an intermediate-term time frame. The index continues to consolidate beneath resistant at July's peak. As mentioned, we expect things to be a little sloppy at this area though an advance to above the 1540 level, especially a clear breakout above 1,555 would set the stage for an explosion higher, possibly into the 1630 area.
The Dow Jones Industrials Average (weekly) chart above addresses an intermediate-term time frame. Similar to the S&P 500 Index, the blue-chip index is also consolidating beneath resistant at July's peak. As mentioned, the upside target, which is about a hundred points away from here, is just too tempting for traders to resist. And right now, the question is not "if" but "when".
Bottom line: Hopefully the September employment report, which is scheduled to release this Friday, can provide the needed catalyst for a test of July's peak.
From an intermediate-term perspective, the overall picture remains bullish heading into the last quarter of the year. Further, if history is any guidance, investors would have nothing to worry about. As a matter of fact, the Standard & Poor's 500 had locked in an average fourth quarter gain of 6% in 13 of the past 15 years.
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.
