Editor's note:
this column was originally published on Capital Essence's CEM News on November 06, 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 Wednesday November 07, 2007.
Stocks staged a late rally Tuesday helped by a rebound in the financial sector.
We've
offered right here a couple days ago that: "
in this business, news is best at top and worse at bottom. The news can always get worse, of course; though with the banks and S&P are trading at important support, this could be a good time to begin to look for signs of seller capitulation and hunting for value in the group" – the banks index (BKX) added about +2% today as it garnered a bargain hunting bid with Goldman Sachs (GS) denying rumors that it is going to announce a big write-down.
For the day, the Dow Jones industrials average finished 117 points, or nearly 0.9%, higher to 13660.
The broader S&P 500 index gained 1.2% to finish at 1520, and the tech-laden NASDAQ climbed 1.07% to 2825.
As a matter of fact, today trading action was very consistent to what we've predicted in our Monday evening "
Cubes Speculator Bulletin": "
the strong Monday afternoon fade suggests… a "turn around Tuesday" – the NASDAQ 100 Index ETF (
QQQQ) rose +1.13% to $54.68 after retreating into the red earlier in the session.
Any call options traded could have earned about 40% intraday.
Continued weakness in the dollar index, which slipped 0.5% to $76.04, a new record low against the Euro, served as another buying catalyst for gold. Gold prices continued to trade at levels not seen since 1980, as COMEX gold for December added $13 to $823.80 an ounce. The AMEX Gold Bugs Index also gained +4.38% for the day.
As you can see, Gold Bugs jumped about +100 points or +28% in about 2 months immediately followed our September 7
bullish comment.
Technically speaking, today bullish breakout had set the stage for a test of the $500 area.
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 traded higher today and hence turned the short-term trend back up. Expect a test of resistant around the 1530-1545 level in the upcoming days. Short-term support is about 1490.
The Dow Jones Industrial Average (daily) chart above addresses a short-term time frame. Similar to the S&P, the blue chip index also traded higher today though it had not able to turn the short-term trend back up because it still trades below resistant at the 50-day moving average area (see chart above). At this level, only a walks above this level can argue for higher prices. And a decline to below short-term support at the 13400 level, meanwhile, suggests a test of the 200-day moving average, about 13200. Resistant is about 13750-13950.
Bottom line: today rally is, definitely, refreshing. Though whether this is just an oversold bounce or it's the beginning of something good is anyone's guess. With that said, until or unless the S&P takes out the October 11 high at 1577, expect things to be sloppy at current level.
In a longer term, keep an eye on the beaten-up sectors, like financials and homebuilders, for a rebound in these "extreme" oversold areas could serve as an all-clear sign for the typical year end rally.
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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