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Good Morning. This is Capital Essence's "Market Outlook" (the technical analysis of financial markets) for Thursday March 27, 2008.
Stocks stumble out of gate Wednesday amid the spiking commodity prices, a fresh batch of weak economic news and a bearish analyst note on investment firm earnings had prompted traders to take profits after recent a nice advance that saw the S&P jumped about 7% in just a week. As a matter of fact, Wednesday's trading action was very consistent to the "consolidation" hypothesis that we've traced out right here in the previous Market Outlook when we wrote that: "the up-leg started from last Monday's low seems to have run out of steam… the market [is due for a] consolidation."
U.S. light, crude oil for May delivery jumped $4.68 to settle at $105.90 a barrel on the New York Mercantile Exchange after a weekly inventory report from the Department of Energy showed a build in stockpiles that was much smaller than expected. Speaking of energy, shares of James River Coal Company (JRCC) – profiled in our March 26 "Swing Trader Bulletin" as a potential buy candidate – jumped 6.71% on heavy volume.
Chart 1.1 – Light sweet crude oil index (daily).
Price rebound nicely after a pullback to key price support was met with an aggressive wave of buying interest. The action had confirmed the validity of the "oversold rebound" scenario that we've noted right here a couple days ago – "last week's decline had pushed prices back directly into the area of key support at the previous bullish breakout point. Not only that this is a strong support, short-term relative strength index, or RSI, indicator had also reach the oversold level and we, therefore, wouldn't be surprise to see a rebound into the 104-106 area."
Right now the most obvious level to watch is March high at 110. Key support is about 98.90.
Benefit from a weaker dollar, gold caught a bid Wednesday after the ECB has make it clear they are unlikely to lower interest rates. COMEX gold for April delivery jumped $14.20 to settle at $949.20 an ounce.
Chart 1.2 – World Gold Index (daily).
Similar to oil, gold also rebound nicely after a pullback to key price support was met with an aggressive wave of buying interest. The short-term relative strength index, or RSI, indicator also confirmed the short-term bullish outlook as it crossed above the oversold level today. And we, therefore, won't be surprise to see some short-term gains in the days ahead. The shiny metal has a layer of resistant that runs from 970 to 1029.
Aside from the higher commodities prices, bad news surrounding the financial stocks dragged on the board market with the S&P 500 lost about 12 points or 0.88% to finish at 1341.
Chart 1.3 – S&P 500 index (daily).
We've said in the previous Market Outlook that: "the main event here is the upward push against key resistance at the area of the 50-day moving average. Not only that this is a tough resistant to overcome, the trading volumes over the last two sessions are at the lowest level since late February. And this is the exact opposite of what the bulls want to see." It seems to us that the reality of the low volume bounce is now coming into play. Although, despite Wednesday decline, the index still traded above the 50-day moving average. This is bullish and raised the odds for a retest of key resistance around the 1400 level. What we don't want to see right now is a decline below Monday low at 1330. So keep a close eye on this level.
In summary: it seems to us that the market is entering a consolidation period, which might last about 2-7 trading sessions. What'll happen next is anyone guesses and we'd be a fool if we tell you anything more than this.
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.
