Editor's note:
this column was originally published on Capital Essence's CEM News on November 05, 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 November 06, 2007.
We've offered in the
previous market outlook that: "
the news can always get worse" – equity market opened significantly lower Monday morning with the Dow gapped down about -130 point at the opening minutes amid the credit market fears.
Contributed to the overall negative sentiment was Citigroup (C) announcement of a write-down of approximately $8 billion to $11 billion for its fourth quarter due to significant declines in the fair value of its approximately $55 billion of U.S. subprime related direct exposures and its CEO and Chairman Chuck Prince is stepping down.
There were more than 220 million shares of Citigroup, or nearly five times its average daily trading volume, were traded Monday.
This is, clearly, a sign of panic selling or
seller capitulation that we've been talking.
It worth notice that after posting a substantial lost at the opening bell, the S&P managed to turn positive for a brief moment in the final half hour of the session.
This could be a sign of smart money buying.
Let's take a look at the major indices:
The S&P 500 Index (daily) chart above addresses a short-term time frame. As expected, the index consolidates near support at the previous bullish breakout area, about 1490. Today bullish hammer candlestick indicates a short-term bullish bias. An advance to above 1514 will confirm this. Resistant is about 1530-1545.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. Similar to the S&P, the blue chip index also consolidates near support at the previous bullish breakout area, about 13600. As noted above, today small bullish hammer indicates a short-term bullish bias. An advance to above 13633 will confirm this. Resistant is about 13750-13950.
Bottom line: We've opined in the
previous market outlook that: "
news is best at top and worse at bottom" the fact that stocks managed to hold above last Friday's low on the face of Citigroup's disturbing write-down news is pretty encouraging.
The market, however, is not out of the wood yet so
"the news can always get worse"; and it might take sometime for the "real" bottom to show up.
So, you've got to be prepared and patient at the meantime!
From a short-term perspective, today bullish hammers printed around the area of important support suggested that the market might have found the short-term bottom. An upside follow-through tomorrow will confirm this. And a decline to below today's low, meanwhile, indicates a retest of the S&P 1440.
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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