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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Wednesday April 30, 2008.
As expected, stocks drifting sideways Tuesday as investors await the FOMC announcement on interest tomorrow. For the day, the Dow Jones industrial average fell 0.3% and the Standard & Poor's 500 index lost nearly 0.4%. Though do not let the quiet day fool you. The most significant part of the day was to see money quietly coming out of commodities and commodities related stocks like gold and energy and into tech stocks.
Chart 1.1 – World gold index (daily).
The yellow metal lost about 50 points immediately followed our bearish comment on the commodity on April 21. While seemingly vulnerable for further short-term loss, we see no convincing evidence that the long-term bull market in commodity is over. As mentioned, the most obvious level to watch is the 200-day moving average – it's a good place where bargain hunters often place their bets. In addition, the relative strength index indicator, or RSI, also suggests that commodity is pretty much oversold in a medium-term basis – a condition that precursor to a meaning rebound.
Despite the overall weakness, high beta stocks like Google Inc (GOOG), Baidu.com Inc (BIDU), Research In Motion Ltd (RIMM) and Apple Inc (AAPL) have broken out to multi-month highs in Tuesday trading session. This is a clear sign that some smart money is positioning themselves for a rotation out of commodities and into tech. The tech-heavy NASDAQ composite index gained about 1.7 points for the day.
Chart 1.2 – NASDAQ composite index (daily).
As you can see, tech stocks have been outperformed the S&P since late March. This is bullish though the bulls won't have any cases until they manage to take out resistance at the six-month falling trend-line, now at 2450. This, if hurdle and sustain, will trigger all sorts of stops, so to speak, and hence has the potential to push prices into the area of 200-day moving average, about 2530. At this juncture, only a sustain decline below immediate support around the 2360 level can wreck the current outlook.
The slide in commodities and energy prices dragged down the board market. The S&P lost 0.39% as a result.
Chart 1.3 – S&P 500 index (daily).
The index continues basing sideway just beneath resistance. As mentioned, while a majority of short-term indicators favor a break to the upside, the bears still have the benefit of the doubts until we see a sustain breakout above key resistance at the area of November's low, about 1406. Although, fake-out – a break above 1406 and back below it – is not uncommon in FED days. That being said, chances are we'll see a few false moves in both directions in a next couple of days. Key support is at the area of 50-day moving average, now at 1345.
In summary: it seems to us that the market is in need of a meaningful catalyst to overcome the key resistance levels. Hopefully tomorrow FOMC announcement will do the trick.
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.
