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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Tuesday January 29, 2008.
Equity market started the week on an uptick that saw 7 stocks advancing for every 2 declining, which was very good considering Asia down 2 to 7 percent overnight. Strikingly, homebuilders managed to shrug off the negative sales report to finish up 4.30% for the day.
Chart 1.1: PHLX Housing Sector Index (daily).
So far so good, the index traded like it wants to test resistant at the area of December's high, about 155. At this moment it's unknown whether this level holds or not though a walk above this level will turn the medium term trend up and hence suggests a test of resistant around the area of the 200-day moving average. Support is about 127-117.
Housing's positive development gave the market a nice boost as concerns surrounding the likelihood of further subprime investment losses for the financial sector started to ease.
Chart 1.2: Standard & Poors 500 Index (daily).
The board market index consolidates right beneath the area of 2007's closing low, about 1374. While the action reflected some sorts of uncertainties among market participants, it's neither bearish nor bullish. With that said, the bulls shouldn't get into any serious troubles as long as the index holds above last week's low, about 1270. Resistant is at the area of 2007's closing low, about 1374.
Chart 1.3: Dow Jones Industrial Average (daily).
Similar to the S&P, the blue-chip index also consolidated right beneath its short-term resistant, about 12500. Again, the action is neither bullish nor bearish. So do not read a lot into it. Support is at last week's low, about 11640.
In summary: the market appears to be caught in a holding pattern ahead of Wednesday's FOMC meeting.
So far we're seeing buying interest in the heavy short areas such as financials and homebuilders.
The action suggested that this rally is just another short covering bounce.
And we, therefore, see no reason to abandon our little "
counter-trend bounce" scenario.
With that said, there's a pretty good chance that last week's low will be retested.
However, if the market manages to shrug off the negative news and moves above key resistant, then we know that real demand has return.
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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