Editor's note: this column was originally published on Capital Essence's CEM News on January 31, 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 February 01, 2008.
All and all, Thursday's trading action was the polar opposite of that of Wednesday. Stocks opened sharply lower in the wake of a disappointment unemployment claim report. Sentiments were, however, lifted after MBIA (MBI) positive conference call. The bond insurer led financial stocks higher.
As it was the case in the past couple of days, homebuilder outperformed the market in Thursday's advance as the group continued to attract bottom-fishing interest. The PHLX housing sector index (HGX) jumped more than 6% for the day. In fact, the action was pretty consistent with the little scenario that we've traced out right here a couple days ago when we've wrote that: : "the index traded like it wants to test resistant at the area of December's high, about 155."
Chart 1.1: PHLX Housing Sector Index (daily).
While today trading action is pretty bullish, the bulls still need to overcome the 155 level on a closing basis to turn the medium-term trend up. And if so, the risk for retest this month's low will be reduced by a large margin. Overhead resistant is around the area of the falling 200-day moving average, about 170-180.
Let's take a look at the major indices:
Chart 1.2: Dow Jones Industrial Average (daily).
The blue-chip index rallied directly into overhead resistant around the 12700-13000 level. While the rebound from last week's low exhibit the characteristic of a bear market rally, it remains to be seen if we've got further room to run before it fails. Key support is at last week's low, about 11640.
Chart 1.3: Standard & Poors 500 Index (daily).
Similar to the Dow, the S&P had also rallied directly into the area of overhead resistant around the 1400-1420 level. As noted above, while the rebound from last week's low has the characteristic of a bear market rally, it's remained to be seen whether it still has got some rooms to push before runs out of steam. Key support is at last week's low, about 1270.
It worth notice that small cap stocks outperformed large cap in Thursday's advance with the Russell 2000 Index rose 2.56%.
Chart 1.4: Russell 2000 Index (daily).
The chart looks very promising from a short-term trading perspective. Not only did the index outperformed the S&P in the advance from January's low, today trading action suggests that there is a pretty good chance that the overhead resistant around the area of the falling 50-day moving average, about 735, will be tested sooner rather than later. Support is about 650.
In summary: as noted above, while the rebound from the floor hit last week exhibits the bearish form of a typical bear market rally, it's remained to be seen whether we still have further room to run before it runs out of steam. Speaking of steam, the January employment numbers, which is scheduled to release Friday morning is going to give us some heat. The bulls want to see a strong number. It's widely believed that a "soft" reading would be a real disappointment because it's indicated that the economy is entering a recession.
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.
