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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Wednesday May 14, 2008.
We've offered right here in the previous Market Outlook that: "Monday's trading action is bullish and suggesting further short-term gains. However, the trading volume didn't seem supporting the strong price action. And this is indicating that the upcoming rally, if and when it comes, should be considered as a selling opportunity." Stocks closed slightly lower Tuesday amid a fresh round profit taking activities. Contributed to the overall weaknesses were another record energy prices and Wal-Mart's (WMT) disappointing earning guidance.
Crude oil spiked to an all-time high of $126.50 per barrel, before settling with a gain of 1.57% at $125.80.
Chart 1.1 – Light sweet crude oil index (daily).
Price continues basing sideway near high as it works off the extreme overbought condition. The action is pretty encouraging and suggesting "buy-the-dip" is still the best strategy. Immediate support is at the area of April's high, about 119.
Despite the better than expected April retail sales report, retail stocks were under pressure Tuesday amid a negative sentiment surrounding Wal-Mart's conservative guidance. Shares of the world's largest retailer lost 2.36% to $56.65. The S&P retail index lost 0.19% as a result.
Chart 1.2 – S&P retail index (daily).
Prices broke down below the March's trend-line though held the 50-day moving average. This is not bad though the bulls don't really have any cases unless they manage to overcome the ten-month falling trend-line and last week's high, about 425. Immediate support is about 390. This, if violates, will increase the odds for a test of critical support at the area of March's low, about 362.
Speaking of retail, shares of Big Lots Inc (BIG) posted a health gain of 1.13% Tuesday.
Chart 1.3 – Big Lots Inc (daily).
Initially profiled in our April 15 "Swing Trader Bulletin", shares of the closeout retailer has gained about 30% and remains well positioned. Technically speaking BIG remains strong but had rallied directly into the area of overhead resistance around the $29 level. This, if hurdle and sustain, will trigger an acceleration run that has the potential to push prices into the $31 level, then $35.60 afterward. On a long-term perspective, we're still bullish on BIG and expecting the stock to trend higher. Immediate support is at the area of the January's trend-line, now about $25.
Negative sentiment surrounding retail stocks dragged down the board market with the S&P 500 post a slight loss, about half a points or 0.04%.
Chart 1.4 – S&P 500 index (daily).
Price continues basing sideway around support. The action is pretty encouraging from a technical point of view given number of negative headlines – record high oil prices, Wal-Mart's disappointing guidance and Oppenheimer's bearish outlook on brokers. Though the one problem with Tuesday's trading was that volume actually picked up on down day. This had jeopardized Monday's impressive price gains and the well anticipate, big "200-day moving average" test. Right now, the most obvious level to watch is last Friday's low at 1384. This, if violates, will trigger a large-scale sell-off that has the potential to push prices into the area of the 50-day moving average, about 1350.
In summary: the market seems lost the positive momentum that was built on Monday. It could be ready to rollover and all it needs is a meaningful catalyst. Hopefully the April CPI – a major inflation gauge – which is scheduled to release Wednesday morning at 8:30am will do the trick. As noted above, keep an eye on S&P 1384. If we break this level, 1350 will show up in no time.
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.
