Editor's note:
this column was originally published on Capital Essence's CEM News on November 17, 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 Monday November 19, 2007.
Stocks danced between positive and negative territory for most of the Friday session as investors weigh the latest corporate earnings and the ongoing credit crunch. Once again, banks and brokerages, along with transportation and retailers, were relatively weak, while the strength was mostly confined to oil-related stocks and large-cap technology.
Chart 1.1: Crude Oil Index.
Crude oil caught a bid last Friday, up +1.79% to close at $95.10/barrel.
Apparently, the $100 target is just too tempting to resist.
Support is at the three-month rising trendline.
Just so that you know, oil had gained more than 23 points or +32% immediately followed our
August 27 bullish comment.
Despite Federal Reserve Governor Randall Kroszner's remark that the central bank may not continue to lower interest rates, even if the economy worsens, the US Dollar Index (DXY) finished slightly lower for the day
Chart 1.2: US Dollar Index (DXY).
The greenback had printed an inside bar on the weekly chart. This suggested that it is due for a rebound. An advance above short-term resistant at the three-month falling trendline will confirm this. Intermediate-term resistant is about 80. Support is about 75.
Benefited by a lower greenback, and hence, higher commodities prices, the Canadian market has had a pretty nice run. Things were great for the Canadian investors until this summer.
Chart 1.3: TSX Composite Index.
The index pulled back to the area of trendline support after a test of July's high was met by an aggressive wave of selling. Technically speaking, a walk to below the August's low of 12463 will complete the bearish double top pattern and hence, spells an end to the four year-old commodity bull market.
Similar to the TSX, chats of the global markets are also showing signs weaknesses.
Chart 1.4: London Ftse-100 Index.
The European market is also on a verge of breaking down. Bear in mind that a sustain decline below key support at August's low about 5821 will spell an end to the 2003-2007 bull market. Also notice the potential (2000-2007) bearish double top pattern. This is huge!
Chart 1.5: Tokyo Nikkei Index.
Held back by a stronger yen, the Japanese market continues to trade below the 2000's high as resistant. This is very bearish. Technically speaking, a sustain decline below 2006's low, about 14053 will complete the two-year bearish broadening top pattern and a test of 2004-2005 high about 12000 is, therefore, expected.
Chart 1.6: Shanghai Composite Index.
Outperformed …the rest of the world, the notorious Chinese market is having a spectacular run since early '06 bullish breakout. As you can see, the magnitude of the July-October upleg is almost identical to that of the March-May one. Apparently, the first mouse, those who bought at point 1, got the cheese, and so the second mouse (point 2). So, what's about the third mouse? The answer is yes and no – this market is bullish from a long-term perspective but is vulnerable for a short-term correction. So, it's all depended on your time frame and risk profile. Bear in mind that a failure to catch a bid at current level will have the potential to push prices back to the summer's high, about 4300.
Not as lucky as the Chinese investors, the American investors were scrambling for exit amid concerns that the credit crisis is far from over.
Chart 1.7: Standard & Poors 500 Index.
The board market index had pulled back to support around the area of long-term rising trendline. Technically speaking, a failure to hold above the August's low of 1370 will spell an end to the 2003-2007 bull market.
In summary: except the Chinese market, the rest of the world is at an uncertain, odd place right now – they seem to be on a verge of breaking down. And the question is: what can we do? General speaking, there're a lot of works need to be done in order save the global economy from collapsing. Though, it's beyond the scope of this newsletter to go into details. To keep things simple, another fresh liquidity injection will do it. This is making sense because it's holding this short-term corrective phase from turning into something worse and hence giving the market the needed time and confident to straightening things out. And if Helicopter Ben lives up to his name, we think he'd flood the Street with money before Santa comes to town.
(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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