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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Tuesday April 15, 2008.
Stocks kicked off the new week on a negative note as worries about Wachovia's earnings and the outlook for corporate profits overshadowed any relief about the better-than-expected March retail sales report. As a matter of fact, Monday's trading action had confirmed the "further loss" hypothesis that we've offered right here in the previous Market Outlook when we wrote that: "[market seems] vulnerable for further short-term loss."
Despite the overall weakness, shares of Titan International Inc (TWI) set a new record high Monday on heavy volume after Oppenheimer reiterates the Outperform rating on the stock and raised the target to $40. Just so that you know, the stock gains about 14% since profiled in our April 2 "Swing Trader Bulletin" as a potential buy candidate.
Chart 1.1 – Titan International Inc (daily).
Technically speaking, Monday's bullish trading action is indicative that the stage had been set for an acceleration run toward the $40 level. Key support is at the area of February's high, about $35.
Financial stocks were under pressure Monday after the North Carolina-based Wachovia (WB) reported a first quarter loss of $0.14 per share. Analysts had expected it to post a profit of $0.40. The company also cut its quarterly dividend and said it will raise $7 billion through a share sale. Shares dropped 9%. The KBW bank index slipped more than 4% as a result. It also worth noticing that, the sector has lost about 10% over the last five trading sessions.
Chart 1.2 – KBW bank index (daily).
Monday's ugly decline had pushed prices into the area of key support at March low, about 74. At this moment, it's impossible to know whether this level holds or not though with the medium-term relative strength index, or RSI, is fast approaching the oversold level, it wouldn't surprise us to see some sort of consolidation around current level. Although, bear in mind that a sustain decline below the January-March low, would trigger all sorts of stops, so to speak, and has the potential to push prices into the area of 2003 low, about 65 – that's about 14% from here.
Weaknesses in the financial stocks weighed heavily on the broader market with the S&P 500 index lost 0.34% to finish at 1328.
Chart 1.3 – S&P 500 index (daily).
As expected, the index is chopping sideway with a bearish bias on the face of Friday's massive break to the downside. As mentioned, while seemingly vulnerable for short-term loss, the relative strength index, or RSI, indicator is indicating that the market is deeply oversold on a short-term basis – a condition that precursor a technical rebound. With all that said, the short-term out look favors a retest of last week's bearish breakdown point, about 1350, barring a close below March 31, at 1312.81.
In summary: while expecting volatility to continue for sometime as the market is looking for its footing, we believe there is a pretty good chance for a significant attempt to rally this week. All the bulls need is some sorts of good news on both of earnings and inflation front so that they can overcome the "financial mess" as brought about by Wachovia away. Hopefully, the March PPI, which is scheduled to release Tuesday morning, as well as numerous bank earnings releases over the next few days 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.
