Editor's note:
this column was originally published on Capital Essence's CEM News on January 12, 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 Monday January 14, 2008.
We've
offered right here at the beginning of the year that: "
gold [is in good position] to test the psychological 1000 mark" – the yellow metal extended its winning strike last week, with spot gold jumped more than 4% to finish at $895.80 per troy ounce.
Any portfolio invested heavily in gold since our September 7
bullish comment should have gained about +30%.
Chart 1.1: Gold Index (weekly).
Though admittedly extended at current level, expect the yellow metal to draw buyers on a pullback to support at recent bullish breakout point, about 845. Our long-term target on the commodity remains the same – still $1000!
Unless you've invested heavily in gold, as we've
suggested, last week was just another miserable week.
Stocks closed sharply lower on concerns that the credit crunch was affecting consumers.
For the day, the Dow Jones industrial average ($INDU) lost around 247 points, after dropping more than 300 points earlier in the afternoon.
The broader market index, S&P 500 ($SPX), fell 1.4% and the NASDAQ Composite Index ($COMPQ) dropped around 2%. The Russell 2000 ($RUT) small-cap index fell 2.2%.
Despite the overall weakness, the Bank index ($BKX) managed to hang on to the early gains and closed higher Friday, up 0.32% for the day and 0.95% for week.
Chart 1.2: Bank Index (weekly).
The index printed a bullish long tail on the weekly chart after a test of key support at the 2003 bullish breakout point was met with a new wave of buying interest. The action is encouraging and we're, therefore, expecting a retest of the 88-90 level. An upside follow-through in the upcoming days will confirm this. As always we must stress that this is bear market's buy signal. Support is about 78.
Chart 1.3: NASDAQ Composite Index (weekly).
The tech rich index is probing key support around the area of 2006's bullish breakout point, about 2370. If history is any guidance, then the first dips into this area should be greeted by buyers. Resistant is about 2540.
Chart 1.4: Standard & Poors 500 Index (weekly).
The board market index had lost about 10% in value since its October's peak. It's recently spotted wandering around the area of key price zone, about 1370. Bear in mind that a failure to attract buyers at current level is indicative of a retest of 2006's bullish breakout point, about 1310. Resistant is about 1470.
Chart 1.5: Dow Jones Industrial Average (weekly).
The aggressive wave of selling in the past couple of days had pushed the blue-chip index back to its long-term support at the area of five year rising trendline. Bear in mind that a sustain decline below this level will put an end to the 2002 cyclical uptrend in the US equities market. Resistant is about 13300.
In summary: if financial is a cause for the 10% decline in the S&P, then last week action in the group is indicative that the market is at or very near a short-term tradable low. If so, a run to S&P 1470 is in the card. As always, we must stress that this is a buy signal in a dangerous market. Also, keep close eye on S&P 1370 for a violation of this level on closing basis suggests that market has to go a lot lower before it goes up.
(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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