Editor's note:
this column was originally published on Capital Essence's CEM News on December 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 Thursday December 20, 2007.
Stocks finished mixed after another volatile session that saw several sizable gains and declines during the day, with both of the Dow Jones Industrial Average and S&P 500 Index closed slightly below the zero line, down -0.19% and -0.14% respectively. Tech stocks, however, continue to lead the market for the second straight session with the NASDAQ Composite Index gained about 5 points.
Chart 1.1: NASDAQ Composite Index (daily).
We've noted in our December 12 "
Cubes Speculator Bulletin" that: "
the logical assumption after December 11 big sell-off is that if the market falls so much on the FED day, then this is a bad sign. It suggested that this bear is going to have some legs. We see the logic there, but financial markets operate beyond any logical beliefs. Consistently with these thoughts, we believe that Santa rally would resume shortly. The best bet would be waiting for market to stabilize a bit, [current technical conditions support further downside with an additional downside risk about 2%], then buy and hold for a couple of days."
As you can see, the NASDAQ traded like it wants to move higher after the test of support around the 200-day moving average was met with buyers.
Although we must stress that a failure to hold above key support at the area of November's low shall wreck the bullish assumption and hence, argue for lower prices.
Just so that you know, the recent NASDAQ 100 ETF (QQQQ) put option setup achieved the second downside target in just 2 days with a nice 50% gain.
Chart 1.2: Standard & Poors 500 Index (daily).
Not much had been changed since last update, the index basing sideway around the area of short-term support.
As
mentioned, there is a high probability for a test of the double resistant around the 1490 level.
At this juncture, only a decline below Tuesday's low of 1435 can wreck the short-term positive outlook and hence, argue for a test of key support around the August/November's low, about 1400.
Chart 1.3: Dow Jones Industrial Average (daily).
The blue-chips index continues to trade below the 200-day moving average as resistant.
This is bearish.
As
mentioned, until the index walks above this level, things remain poor looking forward.
Resistant is about 13340.
Support is around the area of November's low, about 12700.
In summary: "fold 'em or hold 'em?" – better than Las Vegas, the "
Santa rally" pot is a lot bigger [than before] because, after all, there are only 5 trading days left before the calendar turns to 2008.
(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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