Editor's note:
this column was originally published on Capital Essence's CEM News on November 19, 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 20, 2007.
Equity market suffered another noticeable loss Monday on the back of a weak financial sector. Contributed to the overall weakness were Goldman Sachs's (GS) downgrade of Citigroup (C), which has once again spurred more sales of investment banks and brokerages in expectations of more write-downs on bad investments. Investors also continue to sell bond insurers like MBIA (MBI) and Ambac (ABK), due to worries on downgrades.
Chart 1.1: KBW Bank Index (BKX).
Monday sell-off had pushed the index to key support at last week's low, about 90. Bear in mind that a failure to hold above this level could lead to further selling of the group and hence, increase the chance for a test of the 2003 bullish breakout point, about 80. Short-term resistant is about 100.
Chart 1.2: Standard & Poors 500 Index.
Hurt by the financial stocks, the board market index broke down below short-term support at last week's low, about 1438.
This is bearish.
As
mentioned, a failure to hold above key support at August's low, about 1370, will spell an end to the 2003-2007 bull market.
Chart 1.3: Dow Jones Industrial.
Similar to the S&P, the blue-chips index had also failed to hold support at last week's low, about 12981. Again, this is bearish. As noted above, keep an eye on key support at August's low, for a sustain breakdown below this level could lead to another massive sell-off.
In summary: Monday decline had increased the chance for a test of key support level at August's low. As mentioned, a failure to hold above this level will spell an end to the 2003-2007 bull market. At this stage, only a turn around in the financial group can save market from falling apart. So, it's important that traders keep the BKX 90 on their trading radar.
(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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