Editor's note: this column was originally published on Capital Essence's CEM News on February 11, 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 Tuesday February 12, 2008.
We've offered right here in the previous Market Outlook that: "the market is pretty much oversold in a short-term basis, a situation that, often, precedes a technical rebound" – equity market rallied Monday with tech and commodity shares sparked a broader advance that saw the Dow Jones industrial average rose 0.5%, the Standard & Poor's 500 index gained 0.6% and the NASDAQ composite index climbed 0.7%.
Speaking of tech, shares of Memc Electronic Material (WFR) jumped 4.62% on no apparent news. Just so that you know, the stock is holding an amazing unrealized gain of almost 20% since profiled in our January 22 "Swing Trader Bulletin" as a potential buy candidate.
Chart 1.1 - Memc Electronic Material (daily).
The stock broke out from a 10-day consolidation base. Also, notice the leading bullish On Balance Volume (OBV) divergence at recent low. For starters, when price action and indicator head in different directions they set up a so called "divergence." Technically speaking, price action is the one to play catch-up and, in this case, that would be positive for investors. In short, the stock seems to have the potential to test the overhead resistant around the area of last December high. Support is about 68.
Oil added on to previous gains, rose about 2% to finish at $93.59 a barrel on the New York Mercantile Exchange amid supply concerns stemming from a threat from Hugo Chavez that Venezuela might cut supplies to the U.S. after ExxonMobil (XOM) succeeding in having $12 billion in Venezuelan oil assets frozen.
Chart 1.2 – Light Sweet Crude Oil Index (daily).
The commodity appears to move well on the expected direction and we're, therefore, see no reason to abandon the working hypothesis that the high will be retested. However, the short-term relative strength index (RSI) is entering the overbought territory so we wouldn't be surprised to see some profit taking attempts around the area of January high. Resistant is about 100. Support is about 85.
Bad news surrounding American International Group Inc (AIG), a Dow component, subprime write-down dragged down the blue-chip index. Without AIG, the Dow would have put together a strong advance.
Chart 1.3 – Dow Jones Industrials Average (daily).
Price continues to base sideway near support on below average volume. The action is somewhat positive, at least in a short-term, because it suggests a lack of selling interest at current price level. Support is around the area of January low, about 11640. Resistant is about 12700.
Worries about further subprime write-downs had also dragged down the boarder market index.
Chart 1.4 - Standard & Poors 500 Index (daily).
Similar to the Dow, the S&P also consolidated around the area of short-term support on below average volume. As noted above, the action is indicative a lack of selling interest. Near term technical bias is still pointing to a test of resistant around the area of 50-day moving average. Support is at the area of January low, about 1270. Resistant is about 1400.
In summary: while Monday low-conviction bounce is indicative a lack of selling interest, prices would not be able make any significant upside moves without real demand. With that said, the bulls will not have the ball back unless there is an increase in real demand. In short, until proven otherwise, trading range is the name of the game.
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.
