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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Tuesday April 08, 2008.
On Monday, stocks opened on a positive tone with the Dow gained more than a hundred points at its high of the day after The Wall Street Journal reported that Washington Mutual (WM) could see a $5 billion investment. The news had helped to put in a bid in the financial stocks as investors believed that the worst is over with for the market. However, stocks came off their highs on a surprising announcement from Arch Coal Inc (ACI) midday that their earnings would be below expectations at $2.00-$2.50 a share (est. $2.42). The news, in our opinion, was simply a cruel awakening [to investors] that the upcoming earnings season is likely to be an endless chain of disappointments. As a matter of fact, this was confirmed after the close, when aluminum giant Alcoa Inc (AA) reported earnings that were below expectations.
Despite the selling pressure, James River Coal Company (JRCC) jumped 4.47% to $20.32, a new 52-week high, on the heel of last week's impressive gain of 16%. Shares of the coal producer gains more than 23% since featured in our March 26 "Swing trader Bulletin" as a potential buy candidate. Although seemingly overly extend at current level, expect the stock to draw in buyers on a pullback to previous bullish breakout point, about $18.
Chart 1.1 – LifeCell Corp (daily).
Also topping headlines was the news that LifeCell Corp. (LIFC) agreed to a $1.7 billion cash takeover by medical technology company Kinetic Concepts Inc. Shares of skin graft maker soared 16.94%, an all-time high, Monday or more than 35% since featured in our February 26 "Swing trader Bulletin" as a potential buy candidate.
Also topping headlines was the news that LifeCell Corp. (LIFC) agreed to a $1.7 billion cash takeover by medical technology company Kinetic Concepts Inc. Shares of skin graft maker soared 16.94%, an all-time high, Monday or more than 35% since featured in our February 26 "Swing trader Bulletin" as a potential buy candidate.
Let's take a look at the major indices:
Chart 1.2 – Dow Jones industrial average (daily).
The index tagged key price level today. At first glance, recent trading actions had the same characteristics of what we've seen in prior rebounds that later failed. In addition, trading volume continues to contract as prices moved higher and this makes it exceptionally difficult for the market to overcome resistance around the 12750 level. With all that said, there is a fairly good chance for a test of support at the 50-day moving average, now at 12380, in the upcoming days.
The index tagged key price level today. At first glance, recent trading actions had the same characteristics of what we've seen in prior rebounds that later failed. In addition, trading volume continues to contract as prices moved higher and this makes it exceptionally difficult for the market to overcome resistance around the 12750 level. With all that said, there is a fairly good chance for a test of support at the 50-day moving average, now at 12380, in the upcoming days.
Chart 1.3 – S&P 500 index (daily).
Similar to the Dow, the S&P 500 had also tagged the lower end of the layer of the overhead resistance that runs from 1387 to 1406. As mentioned, not only that this is a tough level to overcome, the overbought condition, which is getting more severe each day, makes it exceptionally difficult for the bulls to push prices above this level. Immediate support is at the area of 50-day moving average, about 1335. Critical support remains at the area of March low, about 1260.
Similar to the Dow, the S&P 500 had also tagged the lower end of the layer of the overhead resistance that runs from 1387 to 1406. As mentioned, not only that this is a tough level to overcome, the overbought condition, which is getting more severe each day, makes it exceptionally difficult for the bulls to push prices above this level. Immediate support is at the area of 50-day moving average, about 1335. Critical support remains at the area of March low, about 1260.
In summary: general speaking, the overbought condition basically sets the stage for a significant reversal. With all that said, while seemingly vulnerable for short-term weaknesses, the bulls shouldn't get into any serious trouble as along as prices hold above key support at the area of 50-day moving average.
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.
