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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday August 24, 2007.
As
predicted, equity market moved significantly higher Thursday morning amid a report that Bank of America (BAC) made a $2.0 billion equity stake in beleaguered Countrywide Financial (CFC). The news initially helped ease the worst of fears about a possible credit crunch. However, market turned for the worse after Countrywide CEO Angelo Mozilo said in an interview on CNBC that there is still a tremendous liquidity problem and that he thinks the housing slump will lead the economy into a recession.
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Technically speaking, bank stocks are coiling for a major move. And if the textbook stands true, the direction of the move is to the downside. A decline to below 107 will confirm this.
Let's take a look at the major index charts:
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The Standard & Poors 500 Index (daily) chart above addresses a short-term frame. We've opined right here in the previous Market Outlook that "
the rally is likely to run out of steam around the 1475 area" the S&P 500 Index hit as high as 1472 Thursday before reversed and settled slightly lower for the day. Any SPRDs S&P 500 ETF (SPY) put option traded could have made at least 30% intraday.
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The Dow Jones Industrials Average (daily) chart above addresses a short-term frame. General speaking, the blue chips index might not have the power needed to "throw" itself into the area of the four-week falling trendline. With that said, buyers are pretty hesitate at this level. And without buying power, the path with least resistant is to the downside.
Bottom line: Thursday trading action suggested that prices could be heading for a retest of last week's low. And the process could start as soon as tomorrow.
