Editor's note:
this column was originally published on Capital Essence's CEM News on November 20, 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 Wednesday November 21, 2007.
Stocks experienced a rocky day that saw the Dow swing of more than 267 points from high to low.
As a matter of fact, Tuesday trading action was very consistent with what we've predicted in the previous "
Cubes Speculator Bulletin": "
the Q's traded like it wants to move higher from here. [However] the breadth indicator…suggested that the rally should be sold."
After a pretty fair +43 points or +2.1% rally in the morning, the NASDAQ 100 Index sold off hard and lost as much as -30 points or about -1.5% in the early afternoon.
The index was, however, managed to recover some of the losses during the last hour to close slightly above the zero line, up 0.44%.
Any options traded could have earned more than +50% intraday.
One stock that went up for the day was ExxonMobil (XOM) – the stock was featured in our November 19 "
Swing Trader Bulletin" as a potential buy candidate.
Share of XOM gained 4.4% for the day after UBS upgraded the stock to buy from neutral.
It was also the Dow's top performer.
Chart 1.1: Standard & Poors 500 Index.
Today trading action provided very little information on trading direction over the next couple of days. Technically speaking, the bears still have the benefit of the doubts unless the bulls manage to push prices above last Wednesday's high of 1493. Support is at August's low, about 1370.
Chart 1.2: Dow Jones Industrial.
Similar to the S&P, the blue-chips index also basing sideway near low. This doesn't look very good. As noted above, the negative bias remains intact until the bulls manage to push prices above key resistant at last Wednesday's high of 13320. Support is at August's low, about 12517.
Chart 1.3: Russell 2000 Index.
Apparently, small caps stocks are taking it on the chin, putting the Russell 2000 Index on the precipice of falling through key support at August's low. A failure to attract buyers at this level could lead to further selling of the group. Bear in mind that a breakdown in the small caps market, if any, will give to bulls more pressures than they've already had. Short-term resistant is about 775.
In summary: while the size of Tuesday's late afternoon rally seems pretty encouraging, trading action in the small-caps universe is definitely worrisome. This split personality, of course, won't last forever. Either the small caps stocks turn around to join their larger peers, or the large stocks will come back down to reunite with the smaller guys. Expect things to remain choppy until Mr. Market makes up his mind. Until then, around and around we go.
(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
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