Editor's note: this column was originally published on Capital Essence's CEM News on March 04, 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 March 04, 2008.
Monday trading session, where stock finished virtually unchanged on the face of record commodities prices, could be counted as a moral victory for the bulls. In fact, the action was pretty consistent with our expectation and we, therefore, see no reason to abandon the working hypothesis that "the market had truly put in a bottom."
Speaking of commodity, oil prices surged, with the light sweet crude for April delivery reached as high as $103.95 USD per barrel before eased a bit into the close to settle at $102.45 a barrel on the New York Stock Exchange, up 61 cents for the session.
Chart 1.1 – Light Sweet Crude Oil Index (daily).
Prices broke out to new high today. While the action is bullish, today bearish candlestick formation is indicative that prices are at or pretty near to the short-term top. Further, the leading bearish relative strength index indicator divergence also seems to support the bear case.
Right now, the most obvious level to watch is the January high, about 100. A failure to hold above this key price level will confirm the above "topping" notion and hence, increases the probability for a retest of February low, about 86.
Stocks stayed in a negative territory for most of the day, though the sense that the market is pretty much oversold in a short-term basis had helped to put in a bid that saw the major indices bouncing back from larger declines in the final half hour.
Chart 1.2 - Standard & Poors 500 Index (daily).
Price consolidated near support at the area of February low. The RSI indicator is hovering around the oversold territory. So it wouldn't surprise us to see further consolidation in the upcoming days. The index has a short-term key support around the 1315 level. Again, keep a close eye on this level. If it goes, we believe that January low could go as well. Resistance is at the area of 50-day moving average, about 1400.
The Dow was under pressured due to weakness in the aerospace giant Boeing (BA), which lost a $40 billion contract for Air Force tankers. Shares of Boeing closed down 2.6% to $80.44.
Chart 1.3 – Dow Jones Industrial Average (daily).
Prices probing support at the area of February low. At this moment, it's unknown whether this level holds or not though with the RSI hovering around the oversold area, there is a pretty good chance that the consolidation is going to stay for a few more days. Support is about 12069. Key resistant is at the area of 50-day moving average, about 12750.
In summary: technically speaking, the market is pretty much oversold on a short-term basis. In a next couple of days, expect prices to chop sideway around current level.
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.
