Editor's note: this column was originally published on Capital Essence's CEM News on March 19, 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 Thursday March 20, 2008.
Those who were looking for a follow-through move to Tuesday's massive rally were largely disappointed by the end of Wednesday's trading. Stocks opened on a positive tone though the opening gains quickly evaporated immediately after a broad-based sell-off in the commodity arena that saw gold plunged $69.00, or 6.5%, to $939 per ounce.
Chart 1.1 – World gold index (daily).
Gold sold off sharply on Wednesday. This is the yellow metal first selloff since November. The decline has pushed prices back directly into the area of the 50-day moving average. Was today weakness just another buying opportunity or the beginning of something worse? This is the million dollar question. We've seen this type of sell-off plenty of times over the last few months, especially after the commodities hit a key price level, which is 1000 in this case, but there were hardly any decisive downside follow-through though this could be changed pretty easily. Right now, support at the area of the 50-day moving average is very important. In addition, Wednesday sell-off seemed to be a bit overdone and we suspect that the bulls will be looking to reload around this level. Key resistance is at today high, about 1000.
The massive sell-of in the commodity sector dragged on the board market. The S&P has given up more than half of Tuesday's gain due to the commodities rout.
Chart 1.2 – S&P 500 index (daily).
The index plunged more than 2% Wednesday after the rally into the area of key resistance around the 50-day moving average was met with an aggressive wave of selling interest. Right now, the most obvious level to watch is Monday's low at 1256. A failure to hold above this level will trigger all sorts of stops, so to speak, and hence has the potential to push prices back into the area of 2006 low, about 1220. Key resistance is at Wednesday high, about 1341.51.
In summary: general speaking, Wednesday massive decline has the characteristic of a technical rotation – fast money rotated out the high flying commodities stocks – than a real board-base break to the downside. With that said, the bulls shouldn't get into any serious trouble as long as the S&P holds above Monday's low.
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.
