Editor's note: this column was originally published on Capital Essence's CEM News on January 24, 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 Friday January 25, 2008 .
As predicted, the stocks extended the winning strike as investors' cheers the White House's stimulus plan. For the day, the Dow Jones industrial added 0.9%. The Standard & Poor's 500 Index gained 1%. It worth noticing that financials continued to provide leadership in Thursday rally. The action led us to believe that the rally was predominantly by short covering – remember, the Street was net short financials. This is not very encouraging because a sustain rally needs REAL buying interest. There is a pretty good chance that the bears will return in force if buyers fail to show up before the calendar turns to February.
Chart 1.1: KBW Bank Index (daily).
The bank index added another 1.86% on top of Wednesday's monster gain of 8.02%. That's about 10% in just 2 days. It's heading toward the area of key resistant, around the 90 level. At this moment, it's unknown whether this level holds or not though we think there's a pretty good chance that it'll meet with an aggressive wave of selling interest. Support is at Tuesday's low, about 74.80.
Chart 1.2: Dow Jones Industrial Average (daily).
The blue-chip index followed through to the upside Thursday and hence, confirmed our short-term bullish outlook on the index. Again, we're believed that a test of key resistant around the area of previous bearish breakdown point, about 12700, is on the card. Support is about 11630.
Chart 1.3: Standard & Poors 500 Index (daily).
So far so good, the board market index followed through to the upside and hence confirmed the test of key price level around the area of 2007's closing low, about 1374. Support is about 1270.
In summary: needless to say, trading action was pretty encouraging in the past couple of days. However, do not forget that the big picture is still bearish with the long-term trend pointing down. It'll take a lot of time to repair the damages done. And until these changes, rallies should be taken as selling opportunities. With that said we believe that there is a pretty good chance that the market is going to open up tomorrow and its true character will likely tested during that opening and we suspect that it might be met with selling interest, at least initially.
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.
