Editor's note:
this column was originally published on Capital Essence's CEM News on October 25, 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 Friday October 26, 2007.
We've opined in the Wednesday evening "
Cubes Speculator Bulletin" that:
Thursday' strong opening might set a perfect stage for the "Whac-A-Mole" [read: sell-the-strength] strategy.
Stocks opened on a positive tone Thursday amid a fresh batch of encouraging earnings news from the likes of Motorola (MOT), Aetna (AET), Express Scripts (
ESRX) and Estee Lauder (EL).
And as expected, the initial move higher was met with an aggressive wave of selling that saw the Dow, NASDAQ and S&P stumble -127, -40, and -15 points respectively, at their lows for the day, around
2:00 ET.
And fortunately, for a second day in a row, the market managed to get back to around the zero line by the closing bell amid the late-day buying interest.
Overall, it was just another wild day on the Street.
Let's take a look at major indices:
The S&P 500 Index (daily) chart above addresses a short-term time frame. The index continues to bounce back and forth between resistant the two-month rising trendline and support at the 200-day moving average. It seems to us that the index had moved into a trading range.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. The index is conducting an important test of resistant at the 13740-ish level. As you can see, there were six incidents, in the past 5 months, in which important high/low were printed every time the index crossed this level. With that said, there is a high probability for a test of the 200-day moving average in the upcoming days if the index fails to take out this level. A decline to below 13400 will confirm this. And a sustain breakout above this level this level, meanwhile, will increase the chance for a retest of October's high.
In summary, although seemingly vulnerable for further declines, the bears will not have any cases as long as the market holds above the strong support at the 200-day moving average. On the same token, the bulls will only get back the driver side of the market if they manage to push prices above key resistant. And we do not expect this bull-bear battle to resolve until the calendar turns to November.
Until next time, good luck!
(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
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