Editor's note:
this column was originally published on Capital Essence's CEM News on December 01, 2007. It's being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Monday December 03, 2007.
We've
discussed here a couple days ago that "
with an average price of the stocks in the broad S&P 500 Index was off nearly 10% from its October's high as we're heading into the supposedly strong seasonal period, the bulls should be given the benefit of the doubts", stocks staged a huge oversold rally that saw the Dow rose 3% for the week, while the S&P 500 and the tech rich index, NASDAQ Composite, gained 2.8% and 2.5%, respectively.
In speaking of tech, last week's trading action was very consistent to what we've offered in the November 27 evening
"Cubes Speculator Bulletin": "
the bullish double bottom scenario is in the cards", the NASDAQ 100 ETF (
QQQQ) had achieved the second upside target at $52 or 5% gain in just 3 days.
Shares of Sirius Satellite Radio Inc. (
SIRI), a potential buy candidate in our "
Swing Trader Bulletin", jumped +8.81% last Friday after Bear Stearns analyst Robert Peck said that while he believes junior staffers at the Justice Department moved to block the deal, senior staffers probably disagreed and probably will rule in favor of the deal, which would allow Sirius to buy out the much-larger XM Satellite Radio Holdings Inc.
Overall, it was a good week for the bulls. Contributed to the overall optimism were a decline in energy prices (crude oil drops below $90 per barrel), a report that a bailout plan is in the works for subprime borrowers, and a tacit signal from Federal Reserve Chairman Ben Bernanke that interest rates will likely be cut again at the December 11 FOMC meeting.
The US dollar was stronger across the board last week as the "Uncle Ben will come to market's rescue" crowd grows in size.
Chart 1.1: US Dollar Index (daily).
The dollar broke out above the four-month bearish trendline resistant. This is a bullish sign. Also, notice the positive MACD indicator development at November's low. A sustain advance above last week's high of 76.17 will complete the bullish double bottom pattern and hence increases the probability for a test of key resistant around the 80 level.
Chart 1.2: Standard & Poors 500 Index (daily).
Despite last week' sizeable gain, the board market index remains in a downtrend.
As you can see, the big rally merely brought it back to the lateral 200-day moving average.
As
mentioned, we'd remain skeptical until or unless the bulls manage to push prices above the 1500 area. Support is about 1400.
Chart 1.3: Dow Jones Industrial (daily).
As expected, an advance into the 13500 area was met by aggressive sellers. This is not a very good sign. We've discussed right here a couple days ago that the tape would remain choppy unless the index closes decisively above the 13500 area. Support is about 12700.
In summary: there will be a lot of unique factors that can affect stock prices as we're entering the last trading month of the year. Further, while the market has made some positive developments in the past couple of day, the manic nature of the market recently suggests that it'd be wise to remain skeptical until the bulls prove themselves. In short, the "unfavorable" volatility in equities is still here, like it or not, and you better watch out.
(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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