Editor's note: this column was originally published on Capital Essence's CEM News on October 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 Friday October 12, 2007 .
Stocks saw a dramatic reversal to finish lower on Thursday, with the Dow first sitting at record high on a gain of over 100 points before plunging to a loss of over 100 points. As a matter of fact, Thursday's trading action was pretty consistent with what we've predicted in our previous "Cubes Speculator Bulletin": "QQQQ is working on an important top… There were signs of distribution around the $54 level… The stock looks vulnerable for a pullback." The NASDAQ 100 Index ETF (QQQQ) dropped more than -2% immediately after our bearish call. The Put Option setup gained about +100% intraday.
Let's take a look at the major indices:
A majority of major indices had printed an ugly "one-day key reversal" bar on the daily chart after Thursday's large scale sell-off. It is indicative of a significant change in character. Admittedly bearish, there is no way to know in advance how bad the decline is going to be.
The S&P 500 Index (daily) chart above addresses a short-term time frame. Thursday's sell-off had sent the index back to support at the two-month rising trendline. It worth notice that volume finally returned though unfortunately it wasn't in the bull's favor. Although admittedly bearish looking, the bulls still have the driver side of the market until or unless the bears managed to take out support at the two-month rising trendline.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. Similar to the S&P 500 Index, the blue-chips had also experienced a bad day. Right now, the "burning question" is "can the bulls hold the 14K level?" Our gut feelings say no but we need more than just a gut feeling. Support is about 13700. Although admittedly bearish, expect buyers to regroup at this level.
Bottom line: as noted above, today's plunge is indicative of a significant change in character. It's suggested that market is at or very near to a meaningful peak.
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.
