Editor's note: this column was originally published on Capital Essence's CEM News on October 15, 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 16, 2007 .
As we've offered in the previous Market Outlook – "there is a strong case for a meaningful short-term corrective phase to materialize soon" – (see Market seems vulnerable for a short-term correction, October 15) – stocks stumble out of gate Monday with the Dow lost more than -100 point to 13984.
Contributed to the overall weakness were the rising oil prices and a lousy earnings report from Citigroup (C). Crude oil futures traded at a new all-time high, up +3% to $86.13 amid rising tensions between Turkey Iraq
Oil had gained about +16 points or +22% after we've declared the commodity as the "secular winner" in the end of August. Technically speaking, oil is well positioned to test the $90 level.
Let's take a look at the major indices:
The S&P 500 Index (daily) chart above addresses a short-term time frame. As expected, the board market index rolled over today. So far, price action suggested that the path with least resistant is to the downside. A decline to below support at the 20-day moving average – about 1535 – will confirm this.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. Similar to the S&P 500, the blue-chips also rolled over today though it seemed to found some sort of buying supports at the area of 20-day moving average. This is encouraging though it's too early to conclude that we've seen the short-term low. Short-term support is about 13900.
Bottom line: whether Monday decline is the beginning of the long anticipated short-term correction or something deeper is remained to be seen. With that said, although seemingly vulnerable for further price drop, there is no way to know in advance how bad the decline is going to be. Consistent with these thoughts, while we were pretty aggressive on stocks at mid-August lows, we are now more cautious.
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.
