Editor's note:
this column was originally published on Capital Essence's CEM News on December 13, 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 Friday December 14, 2007.
Stocks staged a late-day recovery Thursday, ending mixed after a tough session amid inflation worries after an early report showed a big jump in wholesale prices. For the day, the Dow Jones industrial average added 0.3%. The broader S&P 500 index finished up 0.12%. The tech-rich NASDAQ composite lost 0.10%.
It worth noticing that spot gold plunged almost 16 points driven by a higher greenback. The US dollar Index gained 0.53% today.
Chart 1.1: Gold Index (daily chart).
The yellow metal broke down decisively after the test of resistant at the two-month falling trend-line was met with an aggressive wave of selling interest. More likely than not, short-term support around the 775 level will be retested and might be exceeded. Bear in mind that a sustain decline below this level will trigger a strong downside momentum that has the potential to push prices back into the area of key support, around the 720 level. As always, we must stress that, at this juncture, only a sustain advance above 845 can wreck the bearish outlook and argue for higher prices.
Chart 1.2: Standard & Poors 500 Index (daily chart).
The index continues to base around the area of 200-day moving average. Given the shaky technical background, today's trading action is pretty encouraging. However, we ain't out of the wood until the bulls manage to take out resistant at the two-month falling trendline, about 1525. Support is about 1360.
Chart 1.3: Dow Jones Industrial (daily chart).
Once again, the 200-day moving average was retested and held. While today's trading action is pretty bullish, the bears still have benefit of the doubts until the bulls manage to take out the short-term resistant, about 13780. Support is at the 200-day moving average, about 13300-ish. As mentioned, it's very important that the index hangs on to this support for a decline below it will trigger all sorts of stops, leading to a strong downside momentum that has the potential to push prices back into November's low.
In summary: while the technical background is still very weak, Thursday's trading action has a short-term bullish implication. It suggests that the market is due for a test of weekly's high, which could take place as soon as tomorrow.
(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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