Editor's note:
this column was originally published on Capital Essence's CEM News on January 10, 2008. It's being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Friday January 11, 2008.
We've noted in the
previous Market Outlook that "
the [market] had underwent a bullish "key reversal day"… Chances are this will evolve into a meaningful bounce… [And] more likely than not, the bounce could continue for a couple of days."
Stocks added on to previous gains with the Dow Jones industrial average rose 0.92%. The broader market index, S&P 500, added 0.8% and the Nasdaq Composite index gained about 0.6%.
It worth notice that small caps outperformed its larger peers in Thursday's advance with the Russell 2000 index rose 1.14%.
Chart 1.1: Russell 2000 Index (daily).
We've
offered right here a couple days ago that: "
the level to watch…is 2006's low, about 675. Expect some sorts of short-covering rallies around this level."
The index rebound nicely after a decline into this level was met with an aggressive wave of buying interest.
Right now, the most obvious level to watch is last week bearish breakdown point, about 735.
Expect some sort of heavy selling activities around this level.
Support is about 675.
Chart 1.2: Standard & Poors 500 Index (daily).
As expected, the index follow-through to the upside and hence confirmed Wednesday's bullish reversal pattern. Again, the most obvious level to watch for the time being is the 50/200-day moving average area, about 1470/90. Support is about 1360/70.
Chart 1.3: Dow Jones Industrial Average (daily).
Similar to the S&P, the blue-chips index had also managed to close above key resistant at recent bearish breakdown point. The action is encouraging, at least in a short-term because it gave the "late to the party" bears (those who sold short into last week's breakdown) a lots of pressure. This is what they've called a "bear trap". And we believe that an upside follow-through tomorrow will give these bears a lot of pressure than they've already had, and hence should gain enough momentum to fuel a run into the area of the "dead cross", about 13300. Support is about 12500.
In summary: At this moment it's impossible to know, and we will not pretend that we know, how long and how far this rally lasts because everything that's happening in the markets right now is the classic example of a "bear trap" which is taking place within a context of a medium-term bear trend. Interesting, isn't it? Theoretically, the market will resume the existing trend as soon as the last bears had gotten out of the trap and the last bull had placed his bets. And where would that level be? If we have to make an educated guess, then it'd be the S&P 1490 level. Although, as always we must stress that this is an interest time and anything could happen, so if you're a short-term trader and looking to "fade-the-tape", then you must define and honor your risk.
Until next time, good luck.
(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
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