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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday August 10, 2007.
We've opined right here in the previous Market Outlook that "
the bulls are going to have a difficult time around the S&P 50-day moving average area" – see "
Tough Days Ahead" August 9, 2007; equity market tumble out of gate Thursday amid a renew fears of a possible credit crunch. The sell-off began after BNP Paribas, a French bank, said that it's halting withdrawals from three of funds due to inability to fairly value holdings piques concerns about subprime contagion effect.
Given its substantial exposure to mortgage lending and widening credit spreads, the KBW Bank Index (BKX) got hammered and slipped into the negative territory for the year.
As we've said back on
July 18 and
August 06 "
financial stocks are entering a secular bear market…the opportunities will continue to come on the short side", the BKX tank almost 4% for the day after the attempt to buy on the dip was met with an aggressive wave of selling.
Technically speaking, today trading action suggested that Monday's low will be retest and exceeded. A decline to below the 105 level will confirm this.
Thursday sell-off had pushed the CBOE Volatility Index (VIX) to a level that had not seen since 2003 in four years. This action suggested that stocks have further to fall.
Despite what was the S&P 500's worst one-day decline since March 2003, the "
Swing-Trader Bulletin" continues to do extremely well with
Starbucks Corp (
SBUX) rose for a four straight session.
Cepheid (
CPHD) also jumped on heavy volume. The position has an unrealized gain of almost 20% in just 3 days. Of the nine different portfolio holdings, four hold 10%-23% unrealized gains each. Three hold 2%-7% unrealized gains each. And only two carry a small lost of 1-4% each.
Let's take a look at the major indice charts:
The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. With its most influential sector also the day's weakest spot, it wasn't surprised to see the S&P 500 outpaced its peers to the downside. As noted above, Thursday sell-off had marked the board market index worst one-day decline since March 2003 with all of its 10 economic sectors closed sharply lower, plunged about 3% on average.
General speaking, Monday's low of 1427 is the key level to watch in the upcoming days. Bear in mind that a close below this level will open the gate to further downside.
The Dow Jones Industrials Average (daily) chart above addresses a short-term frame. As predicted, the blue-chips index reversed sharply after the test of resistant at the 50-day moving average was met with even stronger wave of selling pressure. Keep last week low of 13132 on your trading radar for a move to below this level will increase the probability for a test of the double support (the spring bullish breakout point + the 200-day moving average) around the 12700 level.
Bottom line: general speaking, Thursday trading action indicated that the market is on a verge of breaking down and this does not bode well for the bulls. With that said, a downside follow-through in the upcoming days, especially if accompany by a breakdown to below the S&P 1360 will complete the huge bearish double top pattern (we'll discuss this in the weekly market outlook) and hence, spell the end of this four years old bull market.
Until next time, good luck.
