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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday April 04, 2008.
As expected, stocks whipsaw around the flat-line Thursday as the market works off the overbought condition. Although do not let the flat tape fool you. Thursday's trading action was, indeed, very important. Stocks have held Tuesday's big gains for a second day in a row. Given that we're still stuck in the "Bear Market" this is very good news - for the bulls of course.
Contributed to the overall optimism was drop in energy prices. U.S. light crude oil for May delivery fell $1 to settle at $103.83 a barrel on the New York Mercantile Exchange. Speaking of energy, James River Coal Company (JRCC) jumped 11.67% to $19.23, a new 52-week high, on heavy volume Thursday. Shares of the coal producer gains about 17% since featured in our March 26 "Swing trader Bulletin" as a potential buy candidate.
Merrill Lynch's (MER) CEO John Thain's reassuring comments had also helped to put in a bid in the financial stocks. In an interview to a Japanese newspaper, Mr. Thain said that he did not need to raise more capital. Merrill closed up 1.7% on the news, as well as other financials.
Chart 1.1 – KBW Bank index (daily).
As you can see, the banks did a very good job secure Tuesday's big gain in the heat of credit market crisis. The action is bullish and suggesting that the sector is due for an intense and meaningful breakout. In addition, the relative strength index, or RSI, indicator is indicative that we're neither overbought nor oversold. This is positive and will help to set the stage for a push higher. With all that said, given that all the bad news had already "priced in", the financial sector is now having a "once of a life time" opportunity to break out of the downtrend it has been in since October. Key resistance is about 90. This, if hurdle and sustained, will trigger all sorts of stops, so to speak, and has the potential to fuel a run to February high at 96.51, and then all the way to 100.
Good news surrounding the financial stocks had also helped to push the board market slightly higher with the S&P 500 index rose 0.13% to finish at 1369.
Chart 1.2 – S&P 500 index (daily).
The index continues to consolidate near high on declining volume. The action is bullish and suggesting that there is a pretty good chance that a retest of February high, about 1400, will unfold sooner rather than later. The index has a pretty strong support at the area of its 50-day moving average, about 1340.
In summary: it seems to us that the market wants to move higher and all it need is a meaningful catalyst. Hopefully the monthly job report, which is scheduled to release Friday morning, 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.
