Editor's note: this column was originally published on Capital Essence's CEM News on January 15, 2008. 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 Wednesday January 16, 2008 .
Stocks stumble out of gate Tuesday amid recession fears. For the day, the Dow Jones industrial average lost 277 points, its biggest one-day point loss of the year. The broader market index, S&P 500, lost 2.5%. The NASDAQ Composite lost 2.5% to a 10-month low. Despite the overall weakness, the Amex Airline Index added on previous gain, up 3.23% immediately after our bullish comment on the group. Contributed to the overall optimism was the news that Delta Air Lines (DAL) is looking for a swift merger with Northwest Airlines (NWA) and/or UAL (UAUA).
Chart 1.1: Airline Index (daily).
As expected, the Airline is headed toward the December's bearish breakdown point, about 36. We believe that the group will continue to outperform the broader market on a relative basis. Support is about 27.68.
Chart 1.2: Standard & Poors 500 Index (daily).
It turned out that the Diamond, a typical continuation pattern, resolved to the downside. Technically speaking, the action had increased the probability for a retest key price level around the 1370-1360 level. At this moment, it's unknown whether this level holds or not though a sustain decline below it on a closing basis is suggestive that the 2002 cyclical uptrend in the US
Chart 1.3: Dow Jones Industrial Average (daily).
The blue-chip index broke down decisively below key price support at the area of August's low. This is very bearish. Right now, the most obvious level to watch is spring 2007's low, about 12000. Short-term resistant is about 12930.
In summary: the near term outlook in equities market is pretty miserable. Technical background suggests that stocks are looking at more declines. With that said, unless there is a headline that everyone recognizes as extremely bullish, the bears remain largely in charge.
Until next time, good luck.
(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 subscribe. It's now available at a monthly rate.
