Editor's note: this column was originally published on Capital Essence's CEM News on March 05, 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 March 05, 2008.
Once again, the bulls were saved by the bell. Stocks opened on a negative note Tuesday that saw the Dow Jones Industrial lost roughly 226 points around 2 PM. Though the sense that the market is pretty much oversold in a short-term basis had helped to put in a bid. The market trimmed early losses and closed around the zero line. As a matter of fact, today trading action was pretty consistent to the "sideway trading" scenario that we've traced out right here in the previous Market Outlook when we wrote that: "market is pretty much oversold on a short-term basis…expect prices to chop sideway around current level."
Contributed to the overall optimism was the report that Ambac Financial (ABK) is nearing a bailout package. Good news surrounding ABK sparked some bargain hunting activities in the financial sector. The KBW Bank index down about 3% earlier in the day, closed with a decline of 0.67%.
Chart 1.1 – KBW Bank Index (daily).
Price tested and held above its January closing low at 77.59. The action is bullish and suggesting a retest of resistant at the area of February low, about 85. An upside follow-through tomorrow will confirm this. The index has a layer of support that runs from 77.59 to 74.80.
The late day recovery in the financial sector had helped to push the S&P higher. The board market index recouped most of the early 37 points loss to close at 1326, down only 4 points or 0.34%.
Chart 1.2 - Standard & Poors 500 Index (daily).
The index printed a bullish long tail at the area of key support. The short-term RSI indicator also reached the extreme oversold level. So it wouldn't surprise us to see some sorts of follow-through on the late flurry of bargain-hunting. Expect a retest of key resistant around the area of 50-day moving average in the upcoming days. Short-term support can be found around the 1307 level.
Chart 1.3 – Dow Jones Industrial Average (daily).
Similar to the S&P, the Dow also printed a bullish long tail at the area of key price level. The RSI indicator had also reached the extreme oversold level. Again, expect a retest of key resistant at the area of 50-day moving average in the upcoming days. An upside follow-through tomorrow will confirm this. Short-term support can be found around the 12000 level.
In summary: not much had been changed since last update; the market continues to chop sideway around the area of key support. Given the short-term oversold condition, the action is not very encouraging. It's suggesting a lack of real demand. With all that said, while Tuesday's last-hour buying spike is positive, it doesn't mean that we're out of the woods. Expect prices to chop sideway with a positive bias in Wednesday trading session.
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.
