Editor's note: this column was originally published on Capital Essence's CEM News on December 10, 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 December 11, 2007 .
As predicted, stocks jumped Monday with the Dow Jones Industrial Average added 0.7%, the Standard & Poor's 500 Index gained 0.8% and the tech-rich Nasdaq Composite Index added 0.5%. Contributed to the overall optimism were the upbeat reports about fresh capital infusions into the distress financial sector and a stronger-than-expected pending home sales data. As matter of fact, recent market actions were pretty consistent to what we've opined in mid November: "with the presidential campaign heats up, politicians will do everything to restore voters' confidence, that's including printing decent and/or positive economy news to the front page. This, we believe, will provide the needed platform for a turnaround in the real estate market and so the financial market." It worth noticing that almost immediately after our positive comments, homebuilder (HGX) and banks (BKX) sectors rose about +20% and +12% respectively.
Chart 1.1: PHLX Housing Sector Index (HGX).
The homies had rallied directly into the area of double resistant, about 150. Technically speaking, a sustain breakout above this level will trigger a massive bear squeeze, leading to a strong upward momentum that could fuel a run to the 190-200 level. At this juncture, only a decline below the 136 level can wreck the bullish outlook and argue for lower prices.
Chart 1.2: Standard & Poors 500 Index.
The board market index added on the previous gains after a test of the 50-day moving average was met by a strong wave of buying interest. Trading volume was, however, unimpressive. Though, as we've always said, the most bullish thing the market can do is going up. You don't have to agree [with the tape] but you really have to respect it. The index has a huge overhead supply around the 1555 level. At this moment, it's unknown whether this level can be taken out or not though, as mentioned, the bulls shouldn't get into any serious trouble as long as the index holds above key support at the area of November's low, about 1360.
Chart 1.3: Dow Jones Industrial.
Similar to the S&P, the blue-chips index also picked up where it left off last week, added another 100 points Monday. The index has a huge overhead supply around the 14000 level. As mentioned, a sustain breakout above this level will trigger all sorts of stops, leading to a strong upward momentum that has the potential to push market to new high. Short-term support is about 13200.
In summary: not much has been changed since last update, the overall picture remains positive. Tomorrow's FOMC announcement will have the potential to move stocks one way or the other and high volatility is, therefore, expected.
(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.
