Editor's note: this column was originally published on Capital Essence's CEM News on October 01, 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 02, 2007.
As expected, equity market started the fourth quarter on a high note with the NASDAQ closed at its highest level since 2001 and the Dow finished at an all-time high.
Overall, it was a very nice day on the Street with nine of the ten S&P 500 sectors finished the day in the green. The financial was an "unusual" winner, given the negative news from Citigroup (C) and UBS (UBS), the sector posted the biggest gain, up +2.08% for the day. Before the bell, Citigroup warned its third quarter earnings would fall approximately 60% from a year ago due to the credit turmoil. Citigroup did say it expected fourth quarter earnings to be back to normal. The CEO of UBS, meanwhile, reportedly said in an interview that the company expects to take a $3.4 billion write-down and a third quarter loss due to credit market woes.
The Bank Index (BKX) daily chart above addresses a short-term time frame. Apparently, today bullish breakout above the 50-day moving average in the wake of these warnings suggested that the sector had reached a short-term tradable bottom. With that said, there is a high probability for a test of major resistant about 112 as long as the index holds above support at the 105 level.
Let's take a look at the major indices:
It worth notice that the Dow broke out to a new record high Monday immediately after our bullish comment in the "Cubes Speculator Bulletin" on Thursday September 27 evening: "there were 989,000 Dow Diamond ETF (DIA) crossed the tape at 15:24:50 ET. That was about 10% of the daily volume. More likely than not, the "Dow 15K" chatter will back be sooner rather than later."
As you can see, the Dow rose sharply this morning and traded as high as 14,115.51or +220 points followed a bullish breakout above the psychological 14K level.
Technically speaking, today bullish breakout had set the stage for a test of the 15K level by year end. An upside follow through in a next couple of days will confirm this. Short-term support is about 13900.
The Standard & Poors 500 Index (daily) chart above addresses a short-term time frame. Fueled by strength in the finance and investment banks & brokerages industries, the board index had rallied back within "sneezing distance" of July's peak. Clearly, this target is just too tempting for traders to resist. As mentioned, a clear breakout above 1,555 would set the stage for an explosion higher, possibly into the 1630 area. Short-term support is about 1530.
Bottom line: Monday trading action suggests the path with least resistant is still to the upside. Although with market hanging at multi-year high, keep an eye on the financials for, as we've always said, "As goes the bank, so goes the tape." This is very important and it should be on your trading radar.
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.
