Editor’s Note: The following article was written by Michelle Mai of Capital Essence. It has been reproduced with permission for the benefit of the S.M.R community.
Good Morning. This is Capital Essence’s “Market Outlook” (the technical analysis of financial markets) for Wednesday July 25, 2007.
We’ve opined in our previous Market Outlook that “Monday’s trading action suggested…some sort of negative bias into Tuesday session” – see “Flat Tape” July 24, 2007; equity market closed significantly across the board Tuesday. As expected, small caps and tech stocks got hit hard. In speaking of tech, we’ve mentioned in our previous “Cubes Speculator Bulletin” that – “the “cubes” is ready for a next big move, which could take place as soon as tomorrow…a decline to below $49.64 shall wreck the short-term positive outlook and argue for lower prices. Should this happen, expect a test of short-term support at $49.” The NASDAQ-100 Index ETF (QQQQ) broke down and hit as low as $49.05 Tuesday. The out-of-the-money 49 put option gained as much as 100% intraday.
And also expected, the financial stocks sold off hard, lost almost 3% Tuesday, followed our negative comment on the sector a couple days ago – see “Watch out for a correction” July 18, 2007.
As you can see, the Bank Index (BKX) sliced through the 109 level like hot knife through butter. This is bearish because, as mentioned, since the financial group has the largest weighting in the S&P, the board market index is going to tank should this group took a dive. Immediate support is about 105.
Let’s take a look at major indices:
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. The board market index took out the short-term support at the 1530 level today and landed into the area of the 50-day moving average support. This is a very important level and it should be on your radar. Short-term resistant is about 1555.
The Dow Jones Industrial Average (daily) chart above addresses a short-term frame. The blue-chips index had landed into the area of trendline support after Tuesday sell-off. Bear in mind that a break down below this level, especially if accompany by a decline to below the 13200 level shall complete the bearish “bull-trap” pattern. Short-term support is about 13600. Short-term resistant is about 14020.
Bottom line: It’s hard to believe that after Tuesday sell-off, the S&P is merely 2.5% off the fresh high. With that said, if history is our guide, bargain hunters could raid the Street as soon as tomorrow.
Until next time, good luck.
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.
