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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday May 16, 2008.
As expected, stocks spent Thursday's morning trading around the zero line though a pullback in crude oil sparked a strong recovery rally in the afternoon with a majority of major indices up more than 1%.
U.S. light crude oil fell 26 cents to settle at $123.85 a barrel in a volatile session - crude traded as high as $125.70 per barrel, near its all time record high set last week.
Chart 1.1 – Light sweet crude oil index (daily).
Price continues basing sideway near high as it works off the overbought condition. The action is bullish and suggesting that there is a pretty good chance that we'll see a test of an important sentiment 130 level in the days ahead. Key support is at the area of April's high, about 117.
Tech stocks attracted some strong buying interest Thursday with the NASDAQ composite index rose 1.48% to finish at 2533.
Chart 1.2 – NASDAQ composite index (daily).
The main event here is a climb above the 200-day moving average on strong volume. The action is bullish and helped setting the stage for a test of key resistance at the area of January's bearish breakdown gap, about 2570. Immediate support is at the area of last week's low, about 2430.
Speaking of tech, shares of MetroPCS Communications Inc. (PCS) jumped 5.50% on explosive volume.
Chart 1.3 – MetroPCS Communications Inc. (daily).
Initially profiled in our May 12 "Swing trader bulletin" share of the wireless communications provider gains more than 7% and remained well position. Technically speaking, today's bullish breakout had helped setting the stage for a test of key resistance around the 22.70-24 area. Immediate support is at the 50-day moving average, about 18.50.
The drop in energy prices gave stocks a nice boost with the S&P 500 index gained about 15 points or 1.06% to close at 1423.
Chart 1.4 – S&P 500 index (daily).
The board market index claimed a new four-month high today. While today's trading action is bullish and indicating that the market is ready for an upward push above the 200-day moving average, trading volume didn't seem supporting the underlying advance. This is a bearish relationship and suggesting that the rally might not sustain. Immediate support is at the area of last week's low, about 1384.
In summary: Thursday's bullish trading action had helped setting the stage for an upward push above the S&P 200-day moving average. Unless the break of resistance happens on a big volume surge, the breakout might not sustain. As usual, we must stress out that tomorrow is the options expiration day, which is the most volatile trading session of the month, so you've got to watch-out for fake-head, or false price breakout.
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.
