Editor's note: this column was originally published on Capital Essence's CEM News on December 05, 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 Thursday December 06, 2007 .
Equity market surged Wednesday with the Dow Jones industrial average gained 196 points, or 1.5%. The broader S&P 500 index gained 1.5%. The tech-fueled NASDAQ composite led the market, climbed 1.8%. Speaking of tech stocks, today's trading action was very consistent to what we've offered in Tuesday evening "Cubes Speculator Bulletin": "QQQ Q traded like it wants to go higher from here… mid-week bullish reversal is upon us", the NASDAQ 100 ETF (QQQ Q) snapped a two-day losing streak, rose $0.90 or +1.78% to $51.57. The recent calls option setup gained as much as +30% intraday.
Chart 1.1: Dow Jones Transport (daily).
Transport has not yet managed to break resistance to the upside after early August's bearish breakdown. Wednesday's rally had brought the index into resistance at the area of four-month falling trend-line. At this moment, it's unknown whether this level can be taken out or not though, according to Dow Theory, in order for the Industrial to put on a sustainable rally, we need to see a clear break upside breakout on the Transport. Resistant is about 5000. Support is about 4300.
Chart 1.2: Dow Jones Industrial (daily).
The blue-chips index rallied directly into key resistant around the 13500 level. As mentioned, the bulls will not have any cases until prices move decisively above this level. Short-term support is about 13200.
Chart 1.3: Standard & Poors 500 Index (daily).
Similar to the Dow, the S&P has also rallied into the double resistance, around the 1500 level. We've discussed that no matter how strong or how positive the tape might seem to be, the bulls can only take the backseat until they manage to push prices above the 1500 level. Short-term support is about 1460.
In summary: although seemingly contradictory to the overall sentiment, we believe that the market is trying to move up and all it needs is a right catalyst(s). On the technical side, the bulls definitely want to see a clear breakthrough on the Banking Index (BKX), as discussed in the previous Market Outlook, and Dow Jones Transport. On the fundamental side, market has priced in a 25 basis point cut to the fed funds rate on Dec. 11 FOMC meeting, so any positive surprises in the upcoming retail and labor data will have the potential to push the tape to new recovery high.
(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.
