Editor's note: this column was originally published on Capital Essence's CEM News on February 27, 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 Thursday February 28, 2008.
We've point out right here in the previous Market Outlook that: "the short-term trend is a bit tired …expecting some sorts of profit takings in the upcoming days." Stocks opened on a down note Wednesday, following three consecutive sessions of gains, as investors weighed weak reports on housing and manufactured goods and the near-record energy prices.
Speaking of housing, the PHLX Housing Sector Index gained more than 1% Wednesday on the face of the weaker than expected New Homes Sales – January new home sales fell to a 588,000 unit annualized rate from a revised 605,000 unit annualized rate in the previous month, which is well below the expected drop of 600,000 unit annual rate.
Chart 1.1 – PHLX Housing Sector Index (daily).
Today upside follow-through had confirmed the validity of Tuesday bullish breakout. Also notice, the leading bullish MACD crossover. Technically speaking, the short-term outlook remains positive barring a close below key support at the area of February low, about 130. Resistance is about 155.
Despite the lift in the housing stocks, the S&P has been unable to register gains in Wednesday session. The board market index finished slightly below the zero line, down 0.09%.
Chart 1.2 - Standard & Poors 500 Index (daily).
Not only that the index failed to confirm the validity of Tuesday bullish breakout, the short-term relative strength index (RSI) indicator also dropped below the overbought territory. The action is indicative of a short-term trend reversal. The index has a short-term support around the 1354 level. While Wednesday trading can be classified as bearish, the bears will not have their cases unless they manage to push prices below this level. Resistance is at the area of 50-day moving average, about 1400.
It also worth noticing that, the Euro hit an all time high against the dollar, stretching upward to $1.514, after the Fed Chairman Bernanke indicated that the Fed is likely to continue cutting interest rates in the near term. The greenback weaknesses had helped to put in a bid in the large caps stocks. The Dow industrial average finished slightly above the zero line, up 0.07%, as a result.
Chart 1.3 – Dow Jones Industrial Average (daily).
Despite Wednesday gain, the index still traded within Tuesday trading range, and hence failed to confirm the validity of the bullish breakout. The short-term relative strength index (RSI) indicator is also on a verge of breaking down. A sustain decline below Tuesday low at 12512.41 is indicative of a test of key support at the area of February low, about 12069.
In summary: Wednesday trading action had confirmed the validity of the short-term "overbought" scenario that we've point out in the previous Market Outlook. As also mentioned, whether this is merely a pause that refreshes or a beginning of something important is remained to be seen, though, since we're still in a bear market, we'll continue to treat the rebound from February low as nothing more than a "bear market rally".
Until next time, good luck.
(By: Michelle Mai for Capital Essence)
(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.
